Explaining a Balance Sheet

Being able to explain balance sheets (convincingly), using easy to understand language, is an important starting point to be able to then go on to develop a deeper understanding at higher levels.

Try commiting these definitions to memory – use them as a starting point. At my coaching sessions these simple definitions are developed and extended as each session progresses.

Assets – what the business owns (4 words)

Liabilities – what the business owes (4 words)

Capital – owner’s stake in the business (5 words)

Easy to learn and remember as a starting point. Give it a go.


  1. Always think of the business as a separate legal entity.
  2. Assets have two elements ( FA and CA) – some assets experience depreciation and some are classed as tangible or intangible.
  3. Liabilities can be current or long term – where does VAT owing and the commercial mortgage appear?
  4. In addition to the initial money brought in by the owner,  the owners capital can be increased in two main ways.

I hope this helps build a basis for further exploration.

If you have an accounting term you are not sure about – send me a tweet.




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5 Responses to “Explaining a Balance Sheet”

  1. Vincenza Moon January 5, 2012 12:25 pm

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    • Ian Linnegan January 9, 2012 12:53 pm

      Thanks for this. I’m loving this new toy!

      Have you tried to do the Price/Profit challenge on the free download page


      Have a go and you can always Skype me for somew extra hints if needed. I’d really appreciate any feedback – including suggestions for improvement.

      Skype address is: ianlinnegan

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    • Ian Linnegan January 27, 2012 12:22 pm

      Thanks for this – much appreciated as I’ve just started – have you considered following me on twitter – see the link on the home page?