Lesson 3 of 8 · 3 min

The balance sheet, and why it balances

On any day: what you have, what you owe, and what's left, which is the owner's. It always balances.

Balance sheet
As of 31 Oct 2026
Assets
Cash in hand
Rs 92,000.00
Meezan current account
Rs 1,486,000.00
Accounts receivable
Rs 1,214,000.00
Stock
Rs 1,630,000.00
Sales tax paid (input tax)
Rs 197,100.00
Equipment & furniture
Rs 450,000.00
Total assets
Rs 5,069,100.00
Liabilities
Accounts payable
Rs 1,060,000.00
Sales tax payable (output tax)
Rs 262,800.00
Total liabilities
Rs 1,322,800.00
Equity
Owner's capital
Rs 2,968,300.00
Earlier years' profit
Rs 0.00
This year's profit
Rs 778,000.00
Total equity
Rs 3,746,300.00
Liabilities and equityRs 5,069,100.00
It balances: what the business has (Rs 5,069,100.00) equals what it owes plus the owner's share.
The balance sheet is a picture of one day: what the business has (assets), what it owes (liabilities), and the difference, which belongs to the owner (equity): the capital put in and the profit made.
Why it balances
When
Every entry
Debits equal credits
Then
Every account added up
Result
Assets = liabilities + equity
Why it always balances: every entry has equal debits and credits, so everything you have is always matched by what you owe and what's yours. The page says so at the top; if the two sides ever differed, it would say that instead. With Ledger checking every entry, they don't.
30 June 2027This year's profit
1 July 2027Becomes earlier years' profit
Nothing to doWorked out, never posted
This year's profit and earlier years' profit are worked out from your books, never posted, so a new financial year needs nothing from you. If Opening balances shows an amount, that's what the business was worth when you started: once every opening balance is in, Move it to Owner's capital, on Accounts → Opening balances, moves it there with a journal.

Try it

Opens Ledger. You'll be asked to sign in first; new businesses get a free week, no card needed.

Open the balance sheet

Quick check

One quick question. Pick an answer and Leo will tell you how you did.

1. Assets are Rs 5,069,100 and liabilities Rs 1,322,800. What's the equity?

Rs 3,746,300.00Rs 6,391,900.00

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