Balance sheet and profit and loss account

Short answer

The balance sheet shows what you own and owe at one moment in time; the profit and loss account shows what you earned over a period. They connect through equity: the profit for the financial year increases the equity on the balance sheet.

The balance sheet shows what you own and owe at a moment in time; the profit and loss account shows what you earned over a period. Together they form the core of your annual accounts.

The balance sheet: a snapshot

The balance sheet has two sides that are always equal. On the left (or at the top) are the assets: the things you own, split into fixed assets (business premises, machinery, car, furniture) and current assets (inventories, receivables, cash and cash equivalents).

On the right are the equity and liabilities: equity, provisions and liabilities, split into long-term and short-term. Equity is what remains when you deduct all liabilities from your assets.

Assets	Equity and liabilities
Fixed assets (tangible, intangible, financial)	Equity (capital, reserves, result)
Inventories	Provisions
Receivables	Long-term liabilities
Cash and cash equivalents	Short-term liabilities

The profit and loss account: a period

The profit and loss account sets the income against the expenses of the same financial year. You start with net turnover, deduct the cost of purchases (gross margin), and then deduct the operating expenses: staff costs, depreciation, premises, transport, sales and general expenses.

What remains is the operating result. Then come the financial income and expenses and, for a BV, corporation tax. The final result is the profit or loss that goes to equity.

How do they connect?

The profit from the profit and loss account ends up in the equity on the balance sheet. That is why your equity at the end of the year must equal: the opening balance, plus the result, plus your contributions, minus your drawings and the dividend paid out.

If that does not reconcile, something is wrong: a private withdrawal that has been booked but not processed, a forgotten depreciation, or an old item still sitting in equity.

Why the reconciliation matters so much

The reconciliation of equity is the best check on your entire annual accounts. If it is correct, the rest of your figures will almost always be correct too.

Comparative figures

With a balance sheet with comparative figures, you place the previous financial year next to the current one. That makes the development visible: is your turnover growing, is your inventory falling, is your debt decreasing?

Important: the column with the previous year must correspond to the figures you reported last year. If you deviate, that should be stated in the notes.

Common mistakes

Booking private expenses as business expenses. They belong in your drawings, not in the profit and loss account.
Confusing the opening balance of equity with the closing balance. The closing balance includes the result for this year.
Depreciating using a different method than last year, without stating this.
Including a provision without a concrete obligation or without substantiation.
Forgetting that the balance sheet must balance: a difference of a few euros almost always points to a missed entry.

Frequently asked questions

Must the balance sheet always balance?

Yes. Assets and liabilities are two sides of the same coin: they are equal by definition. If your balance sheet does not balance, an item is missing or an amount is wrong.

What is the difference between profit and equity?

Profit is the result over a period; equity is the value you own at a moment in time after all liabilities are deducted. Profit increases equity, drawings reduce it.

What are comparative figures?

The figures of the previous financial year, next to those of the current financial year. They make the development visible and should be prepared in the same form and with the same accounting policies.

Where does depreciation belong?

The depreciation of a business asset is an expense in the profit and loss account and at the same time reduces the carrying amount of that asset on the balance sheet.

Accounting policiesThe rules behind your amounts.
Opening and closing equityThis is how you check whether your equity reconciles.
Preparing annual accountsThe whole route in eight steps.
Annual accounts for a sole traderWhat is different without legal personality.
GlossaryWhat equity, provision and depreciation mean.
Valuing inventoryWhich method you choose and what that does to your profit.
Bookkeeping or annual accounts?The difference between keeping records and accounting for them.
Calculating equityCheck whether your equity reconciles with your balance sheet.

Prepare your annual accounts yourself?

Work through the wizard, check your figures and download the annual accounts and the KVK filing documents as PDFs. € 60,44 per financial year, once.

Start your annual accounts View a sample See how it works first

Je vult eerst alles in en bekijkt het resultaat — betalen doe je pas als je de stukken wilt downloaden. Geen abonnement. En zit er een fout in de stukken die wij kunnen herstellen? Dan leveren we gratis een nieuwe versie, zo vaak als nodig.

Deze uitleg is algemeen bedoeld. Controleer bij KVK, de Belastingdienst of je accountant of de regels in jouw situatie nog zo gelden. ZelfJaarrekening.nl is a tool, not an accounting firm; you cannot derive rights from this explanation.