Three parts that always balance
Assets are what the business owns: cash, money customers owe you, stock, equipment.
Liabilities are what it owes: suppliers, the ATO, super, credit cards, loans.
Equity is the difference: what would be left for the owners if everything were sold and every debt paid. Assets always equal liabilities plus equity, which is why it is called a balance sheet.
Assets and liabilities are split into current (turning into cash or due within a year) and non-current (longer than that). The current ones are where cash problems show up first.
A worked example: a café at 30 June
| What it owns | Amount |
|---|---|
| Cash at bank | $22,000 |
| Owed by customers | $6,000 |
| Stock | $10,000 |
| Current assets | $38,000 |
| Coffee machine and fit-out, after depreciation | $65,000 |
| Total assets | $103,000 |
| What it owes | Amount |
|---|---|
| Owed to suppliers | $9,000 |
| GST owing to the ATO | $7,000 |
| PAYG withheld from wages, owing to the ATO | $3,500 |
| Super owing | $3,300 |
| Credit card | $2,500 |
| Current liabilities | $25,300 |
| Bank loan for the equipment | $40,000 |
| Total liabilities | $65,300 |
| Equity: $103,000 minus $65,300 | $37,700 |
Three checks worth doing
Is the bank balance really yours? GST, PAYG withholding and super sitting in your account belong to the ATO and your staff. Take them off the cash: $22,000 minus $7,000, $3,500 and $3,300 leaves $8,200 that is actually yours to spend. Since 1 July 2026 super is paid with each pay under the ATO’s Payday Super rules, so less of it should build up; GST and PAYG still do until your BAS.
Can you cover what’s due soon? Divide current assets by current liabilities: $38,000 ÷ $25,300 = 1.50. Above 1 means what is coming in over the year covers what is going out. Take stock out first, because you can’t pay a bill with milk and beans: $28,000 ÷ $25,300 = 1.11.
Who owes whom? Compare what customers owe you with what you owe suppliers. If customers are slow and suppliers want paying, the gap comes out of your bank balance.
Read it with the profit and loss
The balance sheet is a snapshot; the profit and loss is the story of the year in between two snapshots. Read them together: the profit and loss guide shows why a profitable year can still leave less in the bank.