Balance Sheet

A balance sheet is a financial statement that shows what a business owns, what it owes, and the amount that belongs to its owners on a particular date. Think of it as a snapshot of the business’s financial position. Unlike a profit and loss statement, which covers income and expenses over a period, a balance sheet shows balances at one point in time.

What Does a Balance Sheet Show?

A balance sheet has three main parts:

• Assets: Resources the business owns or controls, such as cash, inventory, equipment, and money customers owe it.
• Liabilities: Amounts the business owes, such as loans, unpaid supplier bills, and other outstanding obligations.
• Owner’s equity: The amount attributable to the owners after liabilities are deducted from assets. It may include invested capital and retained profits.

Balance Sheet Formula and Example

The basic formula is:

Assets = Liabilities + Owner’s Equity

Suppose an NRI owns a business in India. On 31 March, its balance sheet shows assets of ₹20 lakh and liabilities of ₹8 lakh. The owner’s equity is ₹12 lakh. Both sides of the formula total ₹20 lakh.

This does not mean the owner has ₹12 lakh available to withdraw. Some assets may be tied up in equipment or inventory, while liabilities may fall due at different times. The figures need context before the owner makes a financial decision.

Why Might an NRI Business Owner Review It?

An NRI who owns or invests in an Indian business can use its balance sheet to ask practical questions. Is the business relying heavily on loans? Does it have enough cash to meet near-term payments? Have amounts owed by customers increased?

Comparing balance sheets from two dates can reveal changes in these figures. The statement alone cannot explain why they changed, so review it alongside the profit and loss statement and supporting records.

A balance sheet is a business document; an NRI’s personal property and bank accounts do not automatically appear on the company’s balance sheet. Which records a person or business must prepare or report depends on its structure and applicable requirements.

For a broader look at maintaining records for an Indian business, see Savetaxs’ accounting and bookkeeping guide for NRIs