The balance sheet, explained for Malaysian SMEs
Written by the Lejar team4 min read
A balance sheet, called the statement of financial position in statutory accounts, is a snapshot of what your business owns and owes at one date, and what is left over for the owners. Assets always equal liabilities plus equity; that is the balance in the name. Unlike a profit and loss statement, which covers a stretch of time, a balance sheet describes a single day.
What are the sections of a balance sheet?
| Section | What it holds |
|---|---|
| Non-current assets | Things held long term: equipment, vehicles, property, less accumulated depreciation |
| Current assets | Cash and things expected to turn into cash within a year: bank balances, trade receivables, stock, deposits, prepayments |
| Current liabilities | What falls due within a year: trade payables, accruals, SST payable, short-term borrowings |
| Non-current liabilities | What falls due after a year: term loans, hire purchase balances |
| Equity | Share capital plus retained earnings: the owners’ stake in the business |
A worked example in Ringgit
| Line | Amount |
|---|---|
| Equipment, net of depreciation | RM45,000 |
| Trade receivables | RM38,000 |
| Bank | RM52,000 |
| Deposits and prepayments | RM8,000 |
| Total assets | RM143,000 |
| Trade payables | (RM24,000) |
| SST payable | (RM6,000) |
| Accruals | (RM5,000) |
| Term loan | (RM28,000) |
| Total liabilities | (RM63,000) |
| Net assets | RM80,000 |
| Share capital | RM10,000 |
| Retained earnings | RM70,000 |
| Total equity | RM80,000 |
How do you read one?
Read it as three questions. First, liquidity: current assets of RM98,000 against current liabilities of RM35,000 leaves RM63,000 of working capital, so bills can be paid as they fall due. Second, gearing: a RM28,000 term loan against RM80,000 of equity means the business is financed mostly by its owners, not its lenders. Third, the retained earnings line: each year’s net profit from the P&L flows into it, which is how the two statements tie together. A balance sheet that never grows its equity is telling you the business earns nothing worth keeping.
What does Malaysia require?
Companies prepare statutory financial statements, including a statement of financial position, under the Companies Act 2016. Most private companies report under MPERS, the Malaysian Private Entities Reporting Standard issued by the MASB and based on the IFRS for SMEs; listed companies and larger groups apply the full MFRS framework. Sole proprietors are not required to file statutory accounts, but a balance sheet is still how you, and any bank you approach for financing, see what the business owns and owes.
Balance sheet, P&L, and cash flow: how they differ
The balance sheet is a snapshot at one date and answers "what do we own and owe". The P&L covers a period and answers "did we make money". The cash flow statement covers the same period as the P&L but tracks money actually moving. Lenders and LHDN will usually want to see at least the first two together.
How does Lejar produce your balance sheet?
Every entry you approve in Lejar posts to your chart of accounts, which starts MPERS-aligned by default, with equity in the 100 band, non-current assets in 200, current assets in 300, current liabilities in 400 and non-current liabilities in 500. Your balance sheet is generated from those double-entry balances for any date you pick, alongside the profit and loss statement and cash flow statement, so the statutory shape is there from day one rather than rebuilt at year end.
Frequently asked questions
Why must a balance sheet balance?
Because of double entry: every transaction posts equal debits and credits, so assets minus liabilities always equals equity. If a balance sheet does not balance, an entry is broken somewhere, not the concept.
Is the balance sheet the same as the statement of financial position?
Yes. Statement of financial position is the name used in statutory accounts under MPERS and MFRS; balance sheet is the everyday name for the same report.
What date should a balance sheet be drawn at?
Any date you need. Statutory accounts use the financial year end; monthly management accounts draw one as at each month end so you can watch receivables, payables, and cash move.
Do sole proprietors in Malaysia need a balance sheet?
Not as a statutory filing. In practice you still want one: banks ask for it when you apply for financing, and it is the only report that shows your receivables, payables, and cash position in one place.
What does negative equity mean?
Accumulated losses have exceeded the capital put in, so liabilities are larger than assets. Lenders read it as distress. The fixes are trading profitably until retained earnings recover, or putting in fresh capital.