Ecommerce Accounting Explained: Balance Sheets

Ecommerce Accounting Explained: Balance Sheets

We will reject interesting opportunities rather than over-leverage our balance sheet.”

Balance sheets are one of the three key financial statements of a company.

Without one, you could misunderstand your current financial situation and hurtle towards bankruptcy. All because your assets, liabilities, and equity are out of balance.

The good news is that balance sheets are not too difficult to understand or prepare.

We’re going to show you how to make one so you don’t have to turn down interesting business opportunities against Mr Buffett’s advice.

In this guide to balance sheets:

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What is a balance sheet?

A balance sheet is a table with two columns showing the assets, liabilities, and equity of a business.

It’s like taking a snapshot of a company’s finances at any given time.

It’s an honest assessment of what a business is worth. If you had to settle all your debts (liabilities) with what you have (assets), what would you have left today (equity)?

You can generate a balance sheet as often as you like. If you take four snapshots over the year, you have a balance sheet for each quarter that you can analyze together.

A year-to-date (YTD) balance sheet refers to a balance sheet spanning from January 1st to the current date.

There are three major parts to a balance sheet: assets, liabilities and equity. We’ll get to these very soon. For now, just remember what the balance sheet equation is:

Note: A balance sheet is also known as a statement of net worth, or a statement of financial position.

Why do I need a balance sheet?

“Many business owners fail to recognize their companies are in trouble until it’s too late. This is because some business owners aren’t examining their balance sheets.

Typically, if the ratio of your business’s assets to liabilities is less than 1 to 1, your company is in danger of going bankrupt, and you’ll have to make some strategic moves to improve its financial health.”

It’s a bit like going to the doctor for a regular checkup to make sure everything’s in working order. 

If you get a heads up that you’re developing something nasty, you can do something about it before it’s too late.

As an ecommerce business, you need a balance sheet just as much as brick-and-mortar stores and service providers do.


By analyzing your balance sheet, you can see a few things:

  • whether your equity is growing over time

  • whether you’re investing in too many non-current assets

  • how much money is tied up in working capital, and where this is located (such as inventory)

  • whether you can cover your liabilities with your assets

Without a balance sheet, it’s hard to know whether your business is in balance.

“Balance sheets are based on accrual versus cash accounting. As an ecommerce company, you want your balance sheet to be a place you can go to see the true financial standing of your company.”

Accrual accounting is the superior method of accounting when it comes to ecommerce. It means income and expenses are recorded as transactions when orders or sales are placed. The alternative is cash accounting, which records transactions when money changes hands.

Whichever method you use, your balance sheet should align with it.

Let’s have a closer look at the three main components of a balance sheet now.

The 3 parts of a balance sheet

There are three parts of a balance sheet, and these are organized into two columns.

The left column lists assets, while the right column lists liabilities and equity.


An asset is a resource with economic value that the company or entity owns. On a balance sheet, assets are listed from most liquid to least liquid.

In simple terms, what you could take out of your pocket right now and pay for in cash today is considered ‘liquid’. These are your current assets.

The valuable things you have that aren’t immediately accessible as cash are ‘illiquid’ and these are your non-current assets.


A liability is a debt.

Just like assets, these have a special order on a balance sheet too: the order in which they’re due.

The ones that are due first (current liabilities) appear at the top. You should be able to cover these with your current assets. As in, if you had to pay those bills today, you could.

Longer-term liabilities (non-current liabilities) come after that.


Equity is the third part of a balance sheet, sitting on the right-hand side below liabilities.

Equity is the value of an asset (in this case, your ecommerce business) after its debts and liabilities are paid.

It refers to the total value that is yours as of right now.

For example: if you own a forklift in your warehouse worth $50,000 and you owe the bank $30,000 on it, you own $20,000 of the forklift’s value.

Your equity in this asset is $20,000.

Similarly, what a shareholder owns in a business is called their equity.

Now we’re going to look at how to prepare a balance sheet, and dive deeper into these sections.

How to prepare a balance sheet in 3 steps

It’s best practice to use a cloud accounting system such as Xero or QuickBooks Online as your source of financial truth.

This will compile the right information for you.

If you need help setting one up, consider working with a specialist ecommerce accountant.

Here are the three key steps to creating a balance sheet.

1. Identify your assets

The first step is to identify your assets, including whether they are current or non-current.

Current Assets

Current assets are cash and other assets that are expected to be converted into cash within the next year.

Examples of current assets:

  • Cash and cash equivalents (like certificates of deposit)

  • Accounts receivables (pending balances on ecommerce merchant accounts, plus invoices due)

  • Inventory (stock to sell)

  • Prepaid expenses

Non-current Assets

These are longer term investments that cannot be converted into cash quickly.

Examples of non-current assets:

  • Property and equipment (land, buildings and improvements, fixtures and equipments, transportation equipment, construction in progress)

  • Things you have leased or rented

  • Goodwill (like a company’s brand name, any patents, stable customer base)

  • Other long-term assets

Remember: all of your assets are listed in the left column of your balance sheet, from current to non-current.

As an ecommerce seller, you’re likely to have most of your assets tied up as current assets such as inventory.

This is because most stores that sell online don’t manufacture their products in-house, and are likely to outsource their logistics to a 3PL. This reduces or removes the need for capital investment in infrastructure, which would count as your non-current assets.

2. Identify your liabilities

Similarly to assets, these are also split into short-term (current) and long-term (non current).

Current liabilities

Current liabilities are amounts due to be paid to creditors within 12 months.

Examples of current liabilities: 

  • Short-term borrowings

  • Accounts payable (invoices you need to pay)

  • Accrued liabilities (wages, taxes, deferred gift card revenue)

  • Accrued income taxes

  • Long-term debts that are due within one year (accounts payable to suppliers on consignment, BNPL purchases that are due for settlement, repayments from long term growth financing) 

Non-current liabilities

These are amounts owed that are not due or expected to be paid in the next 12 months.

Examples of non-current liabilities:

  • Long-term debts

  • Long-term lease and financing obligations

  • Deferred income taxes

List these in the right-hand column of your balance sheet, ensuring that they are ordered from current to non-current.

When you’ve done that, it’s time to look at the third part: equity.

3. Calculate your equity

Remember how we said that equity is what’s left after everything has been paid?

Equity on a balance sheet is the book value of the shareholders’ capital.

Examples of equity:

  • The value of total assets minus liabilities

  • Plus retained earnings (past profits kept in the business)

  • Less any losses if the company doesn’t make profit in a given period

Add the total liabilities and total equity together (the right column) and compare it to the assets (the left column).

Is the number the same? Does it balance?

  • Yes. Awesome! Your balance sheet is healthy and so is the state of your business.

  • No. Uh-oh. If they don’t balance, something is wrong.

Does a balance sheet have to balance?

In theory, yes.

If it doesn’t, it means there is a problem with one (or more) of your accounting entries.

Check that you have listed everything correctly.

“New business owners should not wait until the end of 12 months or the end of an operating cycle to complete a balance sheet. Savvy business owners see a balance sheet as an important decision-making tool. Over time, a comparison of balance sheets can give a good picture of the financial health of a business.”

Who is interested in my balance sheet?

There are a few different parties that might be interested in seeing your balance sheet.

  • Your company’s management team should use the balance sheet to compare its position with previous years. They can determine the company’s financial health as well as analyze its growth.

  • Current investors will want to understand the value of their investment and where there are potential opportunities or threats.

  • Potential investors may want to see how profitable the company is.

  • Creditors (banks) need them to determine whether a company qualifies for borrowing in the form of credit or loans.

  • Your accountant or CFO will need it in order to advise you on the best courses of action to take.

  • The tax department might want to see it as part of your tax return.

This tells you when it’s helpful to do a balance sheet: when you’re asking for investments, or when you’re thinking about measuring your own growth.

In general, unless you’re a publicly listed company, your balance sheet is confidential.

What your balance sheet says about your business

Just like a doctor’s examination shows how healthy you might be at any given time, a balance sheet shows your financial health at any given time.

What information is on a balance sheet?

  • You can see the balance of your financial obligations.

  • You can see what your assets and liabilities are, and the spread between current and non-current.

  • You can see how your equity is growing or decreasing if you compare balance sheets over time.

Example of a balance sheet

Here’s an example balance sheet for a small ecommerce business.





Current Assets


Current Liabilities


Bank account


Accounts payable


Accounts receivable


Accrued liabilities




Non-current Liabilities


Non-current Assets


Bank loan


Ecommerce storeroom




Opening equity



Retained earnings







Whilst looking at a balance sheet is useful to help understand your financial position, it takes effort to maintain it and ensure that you’re looking at an accurate financial picture. 

And that means following well documented processes on a regular basis. To help you do the right things at the right time, we created this ecommerce bookkeeping checklist. It documents the processes you need to carry out every week, month, quarter, or year, to succeed. Get your free copy here.


Where do supplies go on a balance sheet?

If by supplies you mean inventory, they go in the current asset section of your balance sheet.

Does a balance sheet have to balance?

Yes. If a balance sheet doesn’t balance, there’s been a mistake.

Where does cash go on a balance sheet?

Cash is a current asset. It should be the first line in the assets section of the balance sheet (left-hand side).


Want to feel completely confident in your ecommerce bookkeeping?

Businesses that document their processes grow faster and make more profit. Download our free checklist to get all of the essential ecommerce bookkeeping processes you need every week, month, quarter, and year.

Download it here
Ecommerce Bookkeeping Checklist

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