Balance Sheet

The Balance Sheet (formally the Statement of Financial Position under IFRS) is one of three core financial statements. It shows what the entity owns (assets), what it owes (liabilities), and the residual equity belonging to shareholders, all at a single point in time. The fundamental equation: Assets = Liabilities + Equity. Comparative figures from the prior year are shown alongside, so reviewers can trace movement.

For UAE Corporate Tax computations, the Balance Sheet provides opening and closing positions for items like fixed-asset registers (driving depreciation deductions), provisions, and intercompany balances.

The balance sheet works by classifying and summing all assets, liabilities, and equity items as of a single date. Assets are listed in order of liquidity, starting with current assets such as cash, accounts receivable, and inventory, followed by non-current assets like property, plant, equipment, and intangible assets. Liabilities are similarly split between current amounts due within one year, including accounts payable and short-term borrowings, and non-current liabilities such as long-term loans and lease obligations. Equity typically comprises share capital, retained earnings, and reserves. The total assets must always equal the sum of total liabilities and equity. For UAE companies, this statement is prepared by an accountant or bookkeeper, reviewed internally, and then subjected to external audit by a UAE-licensed auditor before submission to the Federal Tax Authority, free zone authority, or banks.

A Dubai mainland trading LLC with 31 December year-end reports AED 5.2 million in current assets including cash at bank and trade receivables, AED 1.8 million in non-current assets comprising warehouse and vehicles, AED 2.5 million in current liabilities mainly trade payables, and AED 1.0 million in non-current liabilities being a term loan. Shareholders' equity of AED 4.5 million is the residual. This balance sheet forms part of the audited financial statements filed with the FTA for corporate tax and with the bank for a facility renewal. A DMCC-registered commodities trader prepares its balance sheet in AED under IFRS, disclosing fair value of commodity inventories and margin deposits, for submission to DMCCA as part of annual audited accounts. An ADGM company preparing its first corporate tax return uses its audited balance sheet to determine net assets and verify no exempt income has been omitted.

Bank credit-line approvals, audit risk assessments, and FTA tax audits all start by reading the Balance Sheet. Sloppy classification (current vs non-current, intangibles, related-party balances) is the most common cause of audit comments.