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The balance sheet: how to read it without getting lost

One equation, one line drawn at twelve months, and four signals that the income statement never gives you.

6 min readTicuenta
The equation: assets = liabilities + equity. What the business has equals what it owes plus what belongs to the owners. If it does not balance, there is an unbalanced entry, not a presentation problem.

Current and non-current: the twelve-month line

An asset is current if it is expected to be turned into cash, sold or consumed within the normal operating cycle — in practice, twelve months. A liability is current if it falls due in that same period.

CurrentWithin 12 monthsCash, receivables, stock
Non-currentBeyond thatEquipment, buildings, long loans
EquityNo maturityCapital and results
The classification is not cosmetic: it is what shows whether the business can pay.
The comparison always worth making. Current assets against current liabilities. If the current liabilities are larger, the business owes more over twelve months than it can turn into cash in twelve months. It can keep trading — many do — but it depends on credit being renewed.

The signals the income statement does not give

What you see on the balance sheetWhat it usually means
Receivables growing faster than salesYou are selling, but not collecting
Stock rising and sales notMoney tied up in the warehouse
Equity falling with a positive profitWithdrawals or dividends above the result
A liability to the owners that only growsThe business is being funded from the owner's pocket

Why there is a “profit for the period” line

Because the year's result does not yet live in any equity account until the closing entry is made. Until then it is spread across the income, cost and expense accounts, and the balance sheet shows it on a separate row so the equation balances.

That is normal and correct. What is not normal is that line still being there months after the year was closed: that means the close was never run.

The balance sheet is cumulative, not periodic

Select “2026” on an income statement and you see what happened in 2026. Select the same on the balance sheet and you see everything recorded up to 31 December 2026, including the balances carried over from before. It is the commonest confusion when reviewing reports, and the cause of half the “money is missing from the balance sheet”.

If you work in dollars, look at the note at the foot. Foreign currency items are converted to colones at the cut-off, and that conversion moves the result through the exchange difference. It is worth knowing the net dollar position before explaining a variation that did not come from trading.
From Ticuenta

A balance sheet that says when it does not balance

If it does not balance, the discrepancy appears at the top with the exact amount. You find out, rather than your client on receiving it.

See how it works

About this article. The presentation and the distinction between current and non-current items are in section 4 of the IFRS for SMEs, Statement of Financial Position.

Verified as of 24 September 2026. Rules change. This is information, not accounting or tax advice.

Sources: IFRS for SMEs (IFRS Foundation)

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