Balance Sheet
Overview
The Balance Sheet is a financial snapshot that shows what your garage owns, what it owes, and what is left over for you (the owner) at a specific point in time. Unlike the Profit & Loss report which covers a period of time, the Balance Sheet captures your financial position on a single date.
The fundamental equation:
Assets = Liabilities + Equity
This equation always balances (hence "Balance Sheet"). Everything your business owns (assets) was funded either by borrowing (liabilities) or by owner investment plus retained profits (equity).
How Financial Entries Affect the Balance Sheet
Financial Entries directly affect the Balance Sheet because they capture items that belong in assets, liabilities, or equity.
| Financial Entry Type | Balance Sheet Effect |
|---|---|
| Prepaid Expense | Increases prepaid/current assets until recognized over time |
| Expense Payable | Increases accounts payable until settled |
| Asset Purchase | Increases asset balances |
| Capital Contribution | Supports equity/owner funding position |
| Account Transfer | Moves value between accounts without changing overall equity |
Use Financial Entries when you want these items reflected correctly here.
Why this matters:
The Balance Sheet answers questions that the Profit & Loss cannot:
- How much cash do I actually have?
- How much do customers owe me?
- How much do I owe suppliers and lenders?
- What is my business actually worth?
- Am I building wealth or depleting it?
How to Access the Report
- Log in to your autoGMS dashboard.
- From the sidebar, click Financial Reporting.
- Select this report directly from the section list.
- Select Balance Sheet.
The report shows your financial position as of today by default.
Understanding the Three Sections
Assets (What You Own)
Assets are resources your business owns that have value. They are divided into two categories:
Current Assets
Assets you expect to convert to cash or use up within one year:
| Asset | What It Is |
|---|---|
| Cash & Bank | Money in your bank accounts and cash on hand |
| Accounts Receivable | Money customers owe you for completed work |
| Inventory | Parts and supplies you have in stock |
| Prepaid Expenses | Payments you have made in advance (insurance, rent, etc.) |
Non-Current (Fixed) Assets
Long-term assets you do not expect to convert to cash within one year:
| Asset | What It Is |
|---|---|
| Equipment | Lifts, diagnostic tools, specialty equipment |
| Vehicles | Company vehicles, tow trucks |
| Leasehold Improvements | Renovations and improvements to your rented space |
| Accumulated Depreciation | Reduction in asset value over time (shown as a negative) |
Liabilities (What You Owe)
Liabilities are obligations your business must pay. They are also divided into two categories:
Current Liabilities
Amounts due within one year:
| Liability | What It Is |
|---|---|
| Accounts Payable | Money you owe to suppliers for parts and services |
| Customer Deposits | Prepayments from customers for work not yet done |
| VAT/GST Payable | Tax you have collected and must remit to the government |
| Wages Payable | Employee wages earned but not yet paid |
| Credit Card Debt | Balances on business credit cards |
| Current Portion of Loans | Loan payments due within the next 12 months |
Non-Current (Long-Term) Liabilities
Amounts due more than one year from now:
| Liability | What It Is |
|---|---|
| Bank Loans | Long-term business loans (excluding the current portion) |
| Equipment Financing | Remaining balance on equipment leases or financing |
Equity (What Is Left for You)
Equity represents the owner's claim on the business after all liabilities are paid:
| Component | What It Is |
|---|---|
| Owner's Capital | Money you (the owner) invested in the business |
| Retained Earnings | Accumulated profits kept in the business (not distributed) |
| Current Year Earnings | Profit or loss from the current year so far |
| Drawings | Money the owner has withdrawn from the business (shown as negative) |
Reading the Report
What You Will See
The Balance Sheet is presented in a vertical format with three sections:
ASSETS
Current Assets
Cash & Bank £15,000
Accounts Receivable £8,500
Inventory £12,000
Prepaid Expenses £800
Total Current Assets £36,300
Fixed Assets
Equipment £45,000
Vehicles £25,000
Less: Accumulated Depreciation (£18,000)
Total Fixed Assets £52,000
TOTAL ASSETS £88,300
LIABILITIES
Current Liabilities
Accounts Payable £5,200
Customer Deposits £2,000
VAT Payable £3,800
Current Loan Portion £6,000
Total Current Liabilities £17,000
Long-Term Liabilities
Bank Loan £20,000
Total Long-Term Liabilities £20,000
TOTAL LIABILITIES £37,000
EQUITY
Owner's Capital £30,000
Retained Earnings £15,100
Current Year Earnings £6,200
TOTAL EQUITY £51,300
TOTAL LIABILITIES + EQUITY £88,300
The Total Assets line should always equal Total Liabilities + Equity. If they do not match, there is an error somewhere.
Comparison View
Enable comparison mode to see the Balance Sheet at two different dates side by side. This shows how your financial position has changed:
- Did assets grow? (Good -- you are accumulating resources)
- Did liabilities shrink? (Good -- you are paying down debt)
- Did equity increase? (Good -- the business is worth more)
Key Ratios and What They Mean
Current Ratio
Current Ratio = Current Assets ÷ Current Liabilities
This measures your ability to pay short-term obligations.
- Above 2.0 -- Very healthy. You have plenty of short-term liquidity.
- 1.5 to 2.0 -- Healthy. You can comfortably meet short-term obligations.
- 1.0 to 1.5 -- Tight. You can pay bills but have limited cushion.
- Below 1.0 -- Danger. You may struggle to pay bills as they come due.
Using the example above:
Current Ratio = £36,300 ÷ £17,000 = 2.14
This is healthy.
Debt-to-Equity Ratio
Debt-to-Equity = Total Liabilities ÷ Total Equity
This measures how much of the business is funded by borrowing versus owner investment.
- Below 1.0 -- Conservative. More owner-funded than borrowed.
- 1.0 to 2.0 -- Moderate leverage.
- Above 2.0 -- High leverage. Heavy reliance on debt.
Using the example:
Debt-to-Equity = £37,000 ÷ £51,300 = 0.72
This is conservative financing.
Working Capital
Working Capital = Current Assets - Current Liabilities
This is the cash you would have left if you paid all short-term bills.
Using the example:
Working Capital = £36,300 - £17,000 = £19,300
You have £19,300 of breathing room.
Using the Report Controls
As-of Date
Select the date for the Balance Sheet snapshot. Common choices:
- Today -- Current position
- End of last month -- For monthly reviews
- End of last quarter -- For quarterly reports
- End of last year -- For annual comparison
Show Details
Toggle to show or hide individual line items within each category. Collapsed view shows only section totals; expanded view shows everything.
Comparison Date
Select a second date to compare against. The report shows both dates side by side with change columns.
What to Look For
Positive Signs
- Growing cash balance -- You are building reserves
- Receivables staying low -- Customers are paying promptly
- Liabilities decreasing -- You are paying down debt
- Equity increasing -- The business is worth more
Warning Signs
- Cash decreasing -- You may face a cash crunch
- Receivables growing faster than revenue -- Customers are not paying
- Payables growing -- You are falling behind on supplier payments
- Equity decreasing -- The business is losing value
Methodology
Click the Methodology button in the report header to see exactly how assets, liabilities, and equity are calculated, what accounts are included, and how the accounting equation is validated.
Tips and Best Practices
-
Review monthly. Compare each month's Balance Sheet to spot trends before they become problems.
-
Watch your current ratio. If it drops below 1.5, you may need to collect receivables faster or arrange additional financing.
-
Track equity growth. If equity is not growing, you are either losing money or withdrawing more than you earn. Neither is sustainable.
-
Understand depreciation. Fixed assets lose value over time. The accumulated depreciation line reflects this. It is not cash leaving your business -- it is an accounting adjustment.
-
Reconcile with bank statements. The "Cash & Bank" line should match your actual bank balances. If it does not, investigate.
Frequently Asked Questions
What is the difference between the Balance Sheet and Profit & Loss?
The Profit & Loss shows revenue and expenses over a period of time (like a video). The Balance Sheet shows your financial position at a single point in time (like a photograph). Together, they give you a complete financial picture.
Why does the Balance Sheet always balance?
Because of double-entry accounting. Every transaction affects at least two accounts. When you buy parts on credit: Inventory (asset) goes up, and Accounts Payable (liability) goes up by the same amount. The equation always stays in balance.
What is Retained Earnings?
Retained Earnings is the accumulated profit that has been kept in the business rather than distributed to owners. It grows when you are profitable and decreases when you make losses or take distributions.
What is the difference between Current Year Earnings and Retained Earnings?
Current Year Earnings is this year's profit (or loss) so far. At year-end, this amount transfers to Retained Earnings and current year starts at zero.
Why is Accumulated Depreciation negative?
It is a "contra-asset" -- an offset to your fixed asset values. Your equipment was worth £45,000 when purchased, but £18,000 has depreciated away, so the net value is £27,000.
Can equity be negative?
Yes. If accumulated losses exceed owner investments, equity becomes negative. This means the business owes more than it owns -- a serious financial problem.
How often should I review the Balance Sheet?
Monthly at minimum. Some owners review weekly, especially when managing cash closely or during growth phases.