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What is a balance sheet? A balance sheet, sometimes called a statement of financial position, isn’t a timeline. It’s a freeze frame. It shows where your finances stand at one specific moment in time.
It answers three questions. What do you own? That’s your assets. What do you owe? That’s your liabilities, and what’s left over once you subtract the two? That’s your net assets or equity.
Assets might include cash in the bank, equipment, or even something you’ve prepaid for.
Liabilities are your credit card balances, unpaid bills, or reimbursements you still owe someone.
Net assets are just the math, assets minus liabilities.
For example, let’s say you have $2,000 in your bank account, $500 on a credit card, and you’re waiting on $5,000 from a grant payment. If you only looked at your bank account, you might think you’re broke, but the balance sheet shows the bigger picture, factoring in what you owe and what’s on the way. You’re in a stronger position than it looks.
That’s the power of a balance sheet. It helps you see whether you’ve got cushion or if you’re scraping by. It’s like taking inventory backstage. What’s in the costume closet, what’s borrowed, and what’s actually yours if you packed up today? A balance sheet doesn’t just help you. It’s also a clear way to show collaborators, board members, or funders how stable your project really is.
What is a Balance Sheet?
A Balance Sheet is a financial report (aka financial statement) that shows the organization’s financial situation, including what it owns, what it’s owed, what it owes to others, and how much available cash it really has. Its formal name is the “Statement of Financial Position”, because it shows what kind of a position your finances are in, boiled down into your assets, liabilities, and net assets. A balance sheet is one of the “big 3” financial statements, along with the Profit and Loss statement and Budget vs. Actuals that most organizations look at every month.
Here’s a real-life example of a balance sheet for a small nonprofit arts organization.
Where do I get a balance sheet?
You can run a report in your bookkeeping software to generate the balance sheet (“statement of financial position”). Or, if you don’t have bookkeeping software or you have a fiscal sponsor, you can make one in a spreadsheet. See the downloadable template below for how to build your own balance sheet in a spreadsheet.
What goes into a balance sheet?
A balance sheet includes three main sections: assets, liabilities, and net assets.
Assets are the things you have that are valuable — cash on hand, money that’s owed to you, and physical things like equipment you could potentially sell for money. What you own includes cash in the bank or under a mattress, major equipment (think: video camera, a car, sequin gown), and what people owe to you (receivables).
What people owe to you (receivables) includes:
- Grants you’ve been awarded but the check hasn’t come yet,
- A donation promised but not made yet,
- Invoices you’ve sent out for payment that haven’t come in yet
- Tickets you’ve sold, but the ticketing platform hasn’t paid you out yet
Liabilities are what you owe to other people. This could include:
- An invoice your sound tech sent to you that you haven’t paid yet
- A balance owed on a credit card or a loan
- Salaries or wages that people have earned, but it’s not pay day yet
For nonprofits, the third category, net assets, is what you’re really worth – what resources you actually have available to use – when you subtract Assets (what you own) minus Liabilities (what you owe). Net assets are broken up into Donor-Restricted Net Assets and Unrestricted Net Assets (we cover restrictions in this learning guide).
If you’re a for-profit business, the third category is called equity instead of net assets, and it’s a little more complicated than we’re going to get into here. But! You can get to the total number the exact same way: assets minus liabilities.
It’s called a “balance sheet”, because your total assets will ALWAYS be exactly equal to your liabilities and equity (net assets) added together.
Where does a balance sheet come from?
A balance sheet comes from adding up all your assets, adding up all your liabilities, and subtracting.
What should I look for in a balance sheet?
First, look at your assets. How much is cash you have right now (Current Assets), and how much is money you’re owed that hasn’t come in yet (Receivables)?
Next, look at your total for Liabilities. How much do you owe to people and businesses (Accounts Payable), how much is debt (credit cards / loans)?
Then, look at your total for Net Assets. This is how much money you’d have available if you cashed everything out (paid off all your liabilities) as of the date of the report.
Finally, you want to make sure your balance sheet is balancing. Look at the total for assets. Is it the same number as the total for liabilities and net assets together? If it’s not, the math isn’t mathing! Double check your calculations and make sure you’ve got everything right.
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