The balance sheet, formally the statement of financial position, sets out a business's assets, liabilities and equity at one specific date. It is named for the fundamental identity it always satisfies: assets equal liabilities plus equity.
What it means
Assets are what the business controls, liabilities are what it owes, and equity is the residual the owners hold once liabilities are settled. The two sides must balance because every transaction is recorded by double entry. Unlike the income statement, the balance sheet does not measure a period's activity - it captures position at a moment, typically the period-end date.
Where it fits in
Payroll leaves a footprint on the balance sheet through the statutory liabilities it raises - PAYE, UIF and SDL owed to SARS, plus amounts due to medical aids and retirement funds. These sit as current liabilities until the EMP201 and third-party payments clear them. Net pay owed but not yet transferred also rests here until payday.
Key rules
- Assets always equal liabilities plus equity.
- A snapshot at a date, not a measure over a period.
- Unpaid PAYE, UIF, SDL and fund amounts appear as current liabilities until settled.
- Retained profit from the income statement increases equity on the balance sheet.
