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, using the applicable ASPE presentation requirements. Required line items include cash, receivables, inventory, property and equipment, accounts payable, income taxes payable, long-term debt, share capital, and retained earnings.

Comparative information is normally presented, subject to ASPE exceptions and significance, shown in a column beside the current year so a reader can see what changed.

Example

A simplified year-end balance sheet for a one-person BC CCPC. Assume the $4,000 shareholder loan has enforceable repayment terms supporting long-term classification; an on-demand loan would normally be current:

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

  Computer equipment (net of amortization)   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 under ASPE 1510, including demand and covenant provisions.
• 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.