The Balance Sheet and its notes

A photograph, not a film

The Income Statement covers twelve months. The Balance Sheet (its full name is the Statement of Financial Position) covers one instant: the close of business on the last day of the year. It lists what the business owns, what it owes, and what is therefore left over for the owner.

It is the accounting equation, set out formally:

Assets = Owner's equity + Liabilities

The two sides must agree to the cent, and not because of a rule someone invented. Every rand of value in the business was put there by either the owner or a lender. If you list all the value and then list everyone with a claim on it, the two lists must come to the same total.

Why things are grouped the way they are

Assets are split by how soon they turn into cash.

• Non-current assets are kept for more than a year to help the business trade: land and buildings, vehicles, equipment (all shown at carrying value, which is cost minus accumulated depreciation), and financial assets such as a fixed deposit.
• Current assets will become cash within a year: inventories, trade and other receivables, and cash and cash equivalents.

Liabilities are split the same way, by when they must be paid.

• Non-current liabilities are due after more than a year, typically a loan.
• Current liabilities are due within a year: creditors, accrued expenses, income received in advance.

The grouping is not decoration. A reader compares current assets with current liabilities to see whether the business can pay what falls due soon.

Notes carry the detail

The face of the Balance Sheet shows totals only, so it stays readable. The notes unpack each total. A note is numbered on the face of the statement and set out below it, and the note total must equal the figure on the face exactly.

A sole trader's statement usually needs notes for tangible (fixed) assets, inventories, trade and other receivables, cash and cash equivalents, owner's equity (the Capital account) and trade and other payables.

Worked example

Worked example. Khumalo Traders, the Mthatha hardware shop from the previous lesson, made a net profit of R145 000 for the year ended 28 February 2026. The owner started the year with capital of R600 000 and took drawings of R96 000.

Khumalo Traders — Balance Sheet at 28 February 2026

R980 000 of value sits in the business. R649 000 of it belongs to N. Khumalo and R331 000 of it belongs to other people. That is the whole message of the statement.

Core checkpoint: the Balance Sheet balances because assets are the same value counted a second time, from the point of view of who has a claim on it. If your statement does not balance, look first for an adjustment where you recorded only one of the two effects.