Lesson 4 · 6 minutes
The Balance Sheet — a snapshot of what your business owns and owes.
While the P&L shows performance over time, the Balance Sheet is a photograph of your business at a single moment. Here's how to read it.
While the P&L shows performance over time, the Balance Sheet is a photograph of your business at a single moment. Here's how to read it.
Lesson overview
P&L vs Balance Sheet
The P&L covers a period — 'how did we do this month?' The Balance Sheet covers a moment — 'what is our position right now?' Every time you run a balance sheet, it shows everything the business owns, everything it owes, and what's left for the owner. On one specific date.
P&L = a period of time | Balance Sheet = a point in time
The accounting equation
Every balance sheet is built on this equation: Assets = Liabilities + Equity Assets are what you own. Liabilities are what you owe. Equity is what's left for the owner after all debts are paid. This equation always balances — that's why it's called a balance sheet.
Assets = Liabilities + Equity
Quiz
Your business has Rp 200M in assets and Rp 130M in liabilities. What is the owner's equity?
Answer: Rp 70M
Assets − Liabilities = Equity. Rp 200M − Rp 130M = Rp 70M. This is the net worth of the business — what would be left for the owner if everything was sold and all debts paid.
Assets
Assets split into two groups: Current assets: things that will convert to cash within 12 months — cash in the bank, unpaid invoices (AR), inventory. Fixed assets: long-term things you use to run the business — equipment, vehicles, machinery. These lose value over time (depreciation).
Current assets: cash, AR, inventory Fixed assets: equipment, vehicles, property
Quiz
Which of these is a current asset?
Answer: Unpaid invoices from clients (Accounts Receivable)
AR is a current asset — it's expected to convert to cash within months. A washing machine is a fixed asset. A bank loan is a liability. The owner's investment is equity.
Liabilities
Liabilities also split into two groups: Current liabilities: debts due within 12 months — unpaid supplier bills (AP), short-term loans, tax owed. Long-term liabilities: debts beyond 12 months — bank loans, lease obligations. The ratio of liabilities to assets tells you how leveraged your business is.
Current: AP, short-term debt Long-term: bank loans, leases
Quiz
You owe a supplier Rp 12M for detergent delivered last week. Where does this appear on your balance sheet?
Answer: Current liabilities (Accounts Payable)
An unpaid supplier bill is Accounts Payable — a current liability. It will also appear as an expense on your P&L (Cost of Sales or Operating Expense), which reduces your profit and eventually your equity.
Equity
Equity has two parts: 1. Paid-in capital: money the owner originally invested to start or grow the business. 2. Retained earnings: all the profit the business has made since it started, minus any withdrawals or dividends. Every time your business makes a profit, equity grows. Every time it makes a loss, equity shrinks.
Equity = Capital invested + Retained profits
Quiz
Your business made Rp 18M net profit last month and you withdrew Rp 5M for yourself. What happened to equity?
Answer: It increased by Rp 13M
Profit adds to equity, withdrawals reduce it. Rp 18M profit − Rp 5M withdrawal = Rp 13M net increase in equity. This is how your P&L connects directly to your Balance Sheet.
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