Monthly balance sheet in 4 steps
After preparing the monthly income statement you know how much you made, but not yet what your business owns and owes on the last day of the month. That is what the balance sheet (statement of financial position) answers. Prepare it from the adjusted trial balance in 4 steps: take the asset, liability and equity accounts, split them into current and non-current, carry the month's net profit into equity, then check that assets equal liabilities plus equity to the riyal.
Example: a caterer's balance sheet at 30 September
We stay with the same caterer. September's income statement was approved with net profit of SAR 35,600, and the owner withdrew SAR 6,000. These accounts remain in the trial balance: bank SAR 84,000, cash box SAR 3,000, customer receivables SAR 46,000, food inventory SAR 12,000, prepaid rent SAR 30,000, equipment and vehicles at cost SAR 252,000 with accumulated depreciation SAR 63,000, supplier payables SAR 41,000, accrued expenses SAR 9,400, customer deposits for October banquets SAR 18,000, bank loan SAR 84,000, capital SAR 150,000 and retained earnings at the start of the month SAR 32,000.
Step 1: take the asset, liability and equity accounts
Revenue and expenses went to the income statement. Everything else in the trial balance comes here, but watch three items many people get wrong:
| Item | Where it belongs |
|---|---|
| A customer deposit for a service not yet delivered | A liability: you owe the service or the refund |
| Accumulated depreciation | Deducted from the asset's cost, not shown as a liability |
| Owner's drawings | A reduction in equity, neither an asset nor an expense |
Step 2: split into current and non-current
Current means it turns into cash or falls due within 12 months; non-current is anything longer. A loan is split: next year's instalments are current, the rest non-current. The caterer's instalments over the next 12 months are SAR 24,000 of the SAR 84,000 loan.
| Line | 30 September (SAR) |
|---|---|
| Bank and cash | 87,000 |
| Customer receivables | 46,000 |
| Inventory | 12,000 |
| Prepaid rent | 30,000 |
| Current assets | 175,000 |
| Equipment and vehicles (252,000 − accumulated depreciation 63,000) | 189,000 |
| Total assets | 364,000 |
| Suppliers and accrued expenses (41,000 + 9,400) | 50,400 |
| Customer deposits | 18,000 |
| Loan instalments due within 12 months | 24,000 |
| Current liabilities | 92,400 |
| Rest of the loan | 60,000 |
| Total liabilities | 152,400 |
Step 3: carry the month's profit into equity
The month's profit increases what the owner has in the business, and drawings reduce it. Equity at 30 September = capital 150,000 + retained earnings 32,000 + September net profit 35,600 − drawings 6,000 = SAR 211,600. Skip this step and the statement will be out by exactly profit less drawings.
Step 4: check it balances, then read liquidity
Liabilities 152,400 + equity 211,600 = SAR 364,000, the same as total assets. Any gap means an account was dropped or classified twice. Once it balances, read at least one figure: current assets ÷ current liabilities = 175,000 ÷ 92,400 = 1.89, so every riyal due within a year is matched by 1.89 riyals that can turn into cash. Track this figure monthly alongside your cash forecast.
Running it from WhatsApp
Owner (1 October): How much is in the bank? I want to withdraw 40,000
System: Bank and cash are SAR 87,000. But SAR 18,000 of that is deposits for October banquets not yet served, you owe SAR 50,400 to suppliers and in accrued expenses, and the monthly loan instalment is SAR 2,000. The balance sheet at 30 September agrees: assets SAR 364,000 = liabilities 152,400 + equity 211,600.
Owner: So how much can I take without squeezing suppliers?
System: After deposits, suppliers and the instalment, SAR 16,600 remains, and SAR 46,000 in customer receivables is still uncollected. Shall I record a SAR 15,000 withdrawal now and remind you of the rest after collection?
Owner: Record 15,000
Note that a SAR 35,600 profit did not mean 40,000 was free to withdraw: the balance sheet separates what you own from what you owe others. More on Arabic accounting from your phone.
Checklist before you approve
- Did you prepare it from the adjusted trial balance, after approving the income statement?
- Are customer deposits a liability, not revenue?
- Is accumulated depreciation deducted from asset cost?
- Is the loan split into the 12-month instalments and the rest?
- Does equity = capital + retained earnings + the month's profit − drawings?
- Do assets equal liabilities plus equity to the riyal?