Balance Sheet

Definition

The Balance Sheet, formally the Statement of Financial Position, reports what a corporation owns (assets), what it owes (liabilities), and the residual interest of the shareholders (equity) as at a specific date. It is a snapshot, not a period report, and it must balance according to the accounting equation: Assets = Liabilities + Equity.

Key rules

Under ASPE Section 1521, the balance sheet must separately present current and non-current assets and liabilities, unless a liquidity-based presentation is more relevant (rare for a small CCPC). Required line items include cash, receivables, inventory, property and equipment, accounts payable, income taxes payable, long-term debt, share capital, and retained earnings.

Comparative figures for the prior year are required by ASPE 1400.24. See comparative financial statements.

Example

A simplified year-end balance sheet for a one-person BC CCPC:

Assets
  Cash                                    45,200
  Accounts receivable                     12,800
  Prepaid expenses                         1,200
  Total current assets                    59,200

  Computer equipment (net of CCA)          3,400
  Total assets                            62,600

Liabilities
  Accounts payable                         2,100
  GST payable                              1,450
  Corporate income tax payable             6,300
  Total current liabilities                9,850

  Shareholder loan                         4,000
  Total liabilities                       13,850

Equity
  Share capital                              100
  Retained earnings                       48,650
  Total equity                            48,750

Total liabilities and equity            62,600

Common mistakes

• Netting shareholder loan receivables against payables. Present the balance gross unless there is a legal right of set-off.
• Classifying the full long-term debt as current instead of splitting the portion due within 12 months (ASPE 3856).
• Forgetting to accrue unpaid corporate income tax at year-end, which understates current liabilities.
• Leaving accumulated amortization off the face of the statement. Either present net with a note, or show cost less accumulated amortization.
• Mis-labelling share capital as retained earnings after a capital contribution from the owner.

Related concepts

The balance sheet ties directly to the income statement through retained earnings, and to the cash flow statement through the change in cash. Equity movements flow through the statement of retained earnings, and accounting policies plus detail schedules live in the notes to the financial statements.