A balance sheet is a financial statement that shows the financial position of an entity at a specific point in time.
It provides a detailed overview of what the entity owns (assets), what it owes (liabilities), and the owner's equity at that moment.
Having a balance sheet is essential for calculating a business's financial ratios.
Home-Based Business Ideas & How ERP Helps You Run ThemMain Components of a Balance Sheet
Main Components of a Balance Sheet
A balance sheet is structured based on the following fundamental formula:
Assets = Liabilities + Equity
This formula helps us understand that Assets minus Liabilities (commonly referred to as expenses) equals Equity, which represents the value of the business for the owner.
1. Assets
Assets are everything the company owns that has economic value. Assets are divided into two types:
- Current Assets
Assets that can be converted into cash within one year or less. Examples: cash, accounts receivable, inventory, marketable securities.
- Non-Current Assets
Assets that take longer to convert into cash. Examples: property, long-term investments, patents, machinery.
2. Liabilities
Liabilities refer to the amounts the company owes to external parties. Like assets, liabilities are divided into two categories:
- Current Liabilities
All short-term debts or obligations due within one year.
For example, if a business has a 10-year loan to buy a building, the portion due within the year is a current liability, while the rest is considered long-term.
- Non-Current Liabilities
Obligations that take more than a year to settle. Examples: bank loans and bonds.
3. Equity
Equity in business means the owner’s or shareholders’ rights to the assets after deducting liabilities.
Steps to Create a Balance Sheet
Determine the Balance Sheet Date
Typically the end of an accounting period (e.g., December 31 or June 30).
Gather Financial Data
This information can be obtained from the general ledger or an accounting system report.
Organize the Assets Section
Assets: cash, receivables, inventory, fixed assets
Organize the Liabilities Section
Liabilities: debts, loans
Calculate & Organize the Equity Section
Components of equity may include:
- Initial or paid-in capital
- Additional capital (if any)
- Retained earnings (accumulated profits)
Check the Balance Sheet Formula
Ensure the equation holds -> Assets = Liabilities + Equity
If it doesn’t balance, double-check calculations or account classification
With Odoo, these steps become significantly easier.
All entries are automatically linked to your balance sheet report, and you can even generate interim balance sheets at any time.
Create a Balance Sheet the Odoo Way
Manually preparing a balance sheet can be time-consuming—especially for growing businesses with numerous transactions.
Odoo, as an all-in-one ERP platform, offers an efficient solution.
In Odoo Accounting , businesses can:
In Odoo Accounting , businesses can:
- Automatically record all transactions (sales, purchases, payments)
- Categorize accounts into assets, liabilities, and equity in real time
- Instantly generate balance sheets with just a few clicks
- Track fixed assets and calculate depreciation automatically
- Monitor account balances and perform effortless bank reconciliation
- Access the balance sheet anytime via an intuitive dashboard
Features like dynamic reporting and smart reconciliation significantly speed up the creation and updating of balance sheets—much faster than Excel or manual bookkeeping.
Odoo also supports various local and international accounting standards (such as PSAK in Indonesisa and IFRS), making it suitable for companies in Indonesia and globally.
📚 Balance Sheet Glossary
Here are some common balance sheet terms:
- Current Assets: Assets that are quickly convertible to cash
- Fixed Assets: Long-term assets used in operations
- Accounts Receivable: Money owed by customers
- Accounts Payable: Money owed to suppliers
- Retained Earnings: Accumulated profits
- Prepaid Expenses: Costs paid in advance
- Inventory: Goods available for sale or in production
- Cash and Cash Equivalents: Most liquid assets, such as cash, bank balances
- Short-Term Liabilities: Obligations due within one year
- Long-Term Liabilities: Debts or obligations due after more than one year
- Shareholder’s Equity: The owner’s claim after subtracting liabilities from assets (includes retained earnings and contributed capital)
- Intangible Assets: Non-physical assets like patents, trademarks, and goodwill.
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