What is a Balance Sheet? Assets, Liabilities, and Equity

The balance sheet is an overview of a company's assets, liabilities, and equity on a specific date. While the income statement covers activity over a period, the balance sheet is a snapshot – often at the end of the financial year.

The fundamental principle is:

Assets = Equity + Liabilities

Both sides must balance because everything the company owns is financed either by its owners or by creditors.

Assets

Assets are typically divided into non-current assets and current assets. Non-current assets (anleggsmidler) are intended for long-term use and can include buildings, machinery, software, or long-term investments. Current assets (omløpsmidler) are normally expected to be converted to cash or used within a shorter period, such as inventory, accounts receivable, and bank deposits.

The book value is not always the same as the market value. Accounting rules, depreciation, and historical cost affect the figures.

Equity and Liabilities

Equity (egenkapital) is the owners' financing and retained earnings that have remained in the company. Positive equity can act as a buffer against losses. Negative or very low equity should be investigated further.

Liabilities (gjeld) are often divided into short-term and long-term liabilities. Short-term liabilities normally fall due within one year, while long-term liabilities have a longer time horizon. This distinction is important when assessing liquidity and financing risk.

What can the Balance Sheet tell you?

The balance sheet can show whether the company has a lot of money tied up in inventory or accounts receivable, how heavily it is indebted, and the size of its equity buffer. By comparing several years, you can see if debt is growing, if capital is weakening, or if the business is building up assets.

The figures should be viewed in conjunction with profitability and cash flow. A company can have substantial assets but still lack cash for ongoing bills. Furthermore, pledges, guarantees, and other conditions may be disclosed in the notes.

Balance Sheet on Proffi

Proffi should group balance sheet items clearly and display comparable years. Users should be able to navigate from main figures to sub-items and see the date, currency, source, and any deficiencies. Key ratios such as the equity ratio, debt-to-equity ratio, and current ratio must have transparent formulas.