Balance Sheet
Meaning, Format & Example
5 min readEvery set of accounts ends with one page that a banker, a buyer or a tax officer turns to first.
What Is a Balance Sheet?
A balance sheet is a statement that shows, on a single date, what a business owns (its assets), what it owes (its liabilities) and what belongs to the owner (capital). The two sides must always be equal. In India it is usually drawn up as at 31 March, and companies prepare it in the format set by Schedule III of the Companies Act, 2013.
The two sides of a balance sheet Assets what the business owns Shop fittings and tempo Stock Customer dues Cash and bank = Liabilities + capital what it owes, and the owner’s share Owner’s capital Tempo loan Supplier bills GST and other dues Total Rs.20,75,250 Total Rs.20,75,250 Every rupee of assets is funded either by someone the business owes or by the owner, which is why the two totals always match. Figures are from the Bathinda example below.What a Balance Sheet Includes
Read from top to bottom, it answers three questions: what do you have, what do you owe, and what is left for you?
| Section | What goes in it | Example |
|---|---|---|
| Assets | Everything the business owns or is owed | Shop fittings, stock, customer dues, cash |
| Liabilities | Everything it owes to others | Bank loan, supplier bills, GST payable |
| Capital | What is left for the owner | Money put in, plus profits kept |
Assets = Liabilities + Capital
Inside assets and liabilities, items are split by time. Anything expected to turn into cash, or fall due, within 12 months or one operating cycle, whichever is longer, is current, and the rest is non-current. So a delivery tempo is a non-current asset, while this month’s supplier bills are a current liability.
The format depends on who you are:
- Companies follow Division I of Schedule III, a vertical layout with equity and liabilities first and assets below, which ICAI’s guidance note on Schedule III explains line by line. Banks, insurers and power companies use formats set under their own laws.
- Companies on Ind AS use Division II of the same schedule (Division III for NBFCs), with somewhat different headings.
- Firms and proprietors are not bound by Schedule III. ICAI has published a similar format for them, though plenty still use the older two-sided T-format.
Every figure comes from the closing balances in your trial balance, so the statement is only as accurate as the ledgers behind it.
Balance Sheet vs Profit and Loss Account
These two get mixed up more than any other pair in accounting, partly because they are prepared together at year end.
| Aspect | Balance sheet | P&L account |
|---|---|---|
| Covers | One date | A full period |
| Shows | What you own and owe | What you earned and spent |
| Answers | How sound is the business? | Did it make money? |
| Ends with | Two equal totals | Net profit or loss |
They meet at one line. The year’s net profit from the profit and loss report is added to the owner’s capital, and a loss is taken off it.
Balance Sheet Example
A tractor spare parts dealer in Bathinda, Punjab, runs as a proprietorship. The owner began FY 2025-26 with capital of Rs.10,80,000, earned a net profit of Rs.4,36,250 and drew Rs.3,12,000 for household use, which leaves closing capital of Rs.12,04,250.
| Side | Item | Amount |
|---|---|---|
| Capital | Owner’s capital | Rs.12,04,250 |
| Liability | Tempo loan, instalments due after a year | Rs.2,10,000 |
| Liability | Supplier bills unpaid | Rs.5,48,400 |
| Liability | GST and other dues | Rs.1,12,600 |
| Total | Capital and liabilities | Rs.20,75,250 |
| Asset | Shop fittings and tempo, after depreciation | Rs.4,86,500 |
| Asset | Stock of spare parts | Rs.11,42,300 |
| Asset | Credit given to farmers and mechanics | Rs.3,27,850 |
| Asset | Cash and bank | Rs.1,18,600 |
| Total | Assets | Rs.20,75,250 |
Note: this is an invented example for illustration only.
Both sides come to Rs.20,75,250 as at 31 March 2026. More than half the assets sit in stock, which is normal for a spares dealer and also the first line a bank questions when the dealer asks for a bigger limit. A ready Excel format for proprietorships and partnerships lays out the same heads.
What a Lender Looks At First
A balance sheet matters most on the day someone else has to trust your numbers. A bank setting a cash credit limit looks first at stock and customer dues, then at how much of the business runs on borrowed money rather than the owner’s capital.
Companies have no choice about preparing one. Even a one-person company or a small company files one with the Registrar each year; what those two may skip is the cash flow statement.
For a proprietor, the push comes from elsewhere: lenders want one, and the full income-tax return for business income asks for asset and liability figures, though a trader on presumptive tax reports only a few headline items.
Fixed assets go in after depreciation, and this depreciation calculator works out that figure. This guide puts the vertical and horizontal layouts side by side.
Across the retail businesses we work with, this statement often gets its first serious read only when a loan comes up for renewal. That is late. A look every quarter shows stock or customer dues piling up months before the bank points it out.
See What You Own and Owe in One Report
Every asset and liability line starts as an everyday entry: a purchase bill, a sale on credit, a payment received. For retail businesses, Petpooja Invoice lists Balance Sheet, Profit and Loss Reports and AR/AP Reports among its plan features, alongside Chart of Accounts and Journal Entry Reports, so the year-end picture sits in the same software you bill from.
Pull up your stock and customer-dues figures today, set them beside last March’s, and see where your cash has gone.
Frequently Asked Questions
What is the balance sheet formula?
Assets equal liabilities plus capital. For a shop with Rs.20.75 lakh of assets and Rs.8.71 lakh owed to others, the remaining Rs.12.04 lakh belongs to the owner.
Does a proprietorship need a balance sheet?
Not in the Schedule III form, which applies to companies. Banks still ask for one before lending, and the full income-tax return for business income asks for asset and liability figures, so a proprietor who keeps books usually prepares one each year.
Why is it called a balance sheet?
Because the totals of its two sides must balance. When they do not, an entry has been missed or posted twice, and the trial balance is where you start looking.
On which date is a balance sheet prepared?
For a company, almost always 31 March, the end of the financial year under the Companies Act. A business can also draw one up on any other date, which is what banks ask for when they want provisional figures in the middle of the year.