How to read your Balance Sheet
Assets, liabilities and equity - explained
The Balance Sheet in Xero shows the company's financial position at a specific date. It is divided into three sections.
Assets
Assets are things the company owns or is owed. Fixed assets include equipment and computers. Current assets include cash in the bank, outstanding invoices (debtors), and stock.
Liabilities
Liabilities are things the company owes. This includes outstanding supplier bills, VAT due to HMRC, Corporation Tax due, and the director's loan account if it is in credit.
Equity
Equity is the difference between assets and liabilities. It includes the share capital paid in and the retained earnings accumulated since incorporation. The balance sheet always balances: total assets always equal total liabilities plus equity.
💡 Good to know: If the balance sheet does not balance in Xero, there is a data entry error somewhere. Do not try to fix this by adding a manual journal. Contact us and we will find the discrepancy.
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