How to Read and Analyze a Balance Sheet Like a CFO

A Practical Guide to Balance Sheet Analysis in Quickbooks Online

If you’ve ever opened a balance sheet and felt unsure what you were actually meant to do with it, you’re not alone. I see this all the time with small business owners, bookkeepers, and accounting students. Many people know how to run the report, check that assets equal liabilities plus equity, and move on, without really understanding what the numbers are saying.

In this guide, I walk through how I review a balance sheet using the same structured approach a CFO would use, demonstrated step by step in QuickBooks Online. I’ll show you how to work through the report line by line, understand what each section represents at a specific point in time, and identify areas that may need follow-up before they turn into bigger problems.

What a Balance Sheet Really Shows (And What It Doesn’t)

The most important thing to understand about the balance sheet is this:

It shows your financial position at a single point in time.

Unlike the income statement, which records activity over a period (sales, expenses, profit), the balance sheet is a snapshot, a photograph, of what your business owns and owes on a specific date.

For example, when you run a balance sheet as of December 31, 2025:

• Assets show what you own on that day
• Liabilities show what you owe on that day
• Equity shows the residual interest in the business

Every number represents a balance, not movement.

Understanding Current vs. Non-Current Accounts

One of the first things to review on a balance sheet is the split between current and non-current items.

Current Assets

Current assets are things you expect to convert to cash within a year, such as:

• Bank accounts
• Accounts receivable
• Inventory

These tell you how much liquidity the business has in the near term.

Non-Current Assets

Non-current assets are items you don’t expect to convert to cash within a year, such as:

• Machinery
• Equipment
• Long-term assets being depreciated over time

The key question here is whether these assets are still realistically worth what the balance sheet says they are.

Current vs. Non-Current Liabilities

The same concept applies to liabilities:

• Current liabilities (accounts payable, credit cards, accrued expenses, sales tax, deferred revenue) are typically due within a year.
• Non-current liabilities (such as long-term notes payable) are due over a longer period.

At year-end, it’s common for a portion of long-term debt to be reclassified as current if payments are due in the next year.

First CFO Question: Can We Pay Our Bills Right Now?

A simple but powerful starting point:

If we had to pay everything today, could we?

By comparing cash on hand to current liabilities, you get an immediate sense of short-term financial stability.

If you have significantly more cash than bills due, that’s a good sign. If not, it’s a signal to dig deeper.

Reviewing Accounts Receivable: Money Owed to You

Accounts receivable represents money you expect to collect from customers. But the balance alone doesn’t tell the full story.

To analyze this properly, you need to look at an Accounts Receivable Aging Report, which shows:

• What’s current
• What’s 30–60 days old
• What’s over 90 days old

Older receivables are harder to collect. Amounts that are very old may need to be written off, otherwise, your balance sheet may be overstating how much cash you’ll actually receive.

This is often where CFO-level conversations begin around:

• Collections processes
• Customer payment behavior
• Sales and billing practices

Inventory: Is It Actually Sellable?

Inventory should only appear on the balance sheet if it’s something you realistically expect to sell.

If inventory is obsolete, damaged, or unlikely to move, its value should be adjusted. Leaving unsellable inventory on the balance sheet inflates assets and creates a misleading picture of financial health.

Non-Current Assets: Are They Still Worth That Much?

For businesses with machinery and equipment, the balance sheet should reflect realistic values, not just historical cost.

If an asset is no longer usable or has become obsolete, its value should be written down. This is especially important in asset-heavy businesses, where equipment values can materially affect financial ratios and decision-making.

Profit vs. Position: Why You Must Look at Both

After reviewing assets and liabilities, it’s helpful to glance at profitability but with context.

Looking at the profit and loss by month often reveals patterns, seasonality, and fluctuations that a single annual number can hide. This helps explain why the balance sheet looks the way it does.

The balance sheet and income statement work together. Neither tells the full story alone.

Key CFO Ratios to Run Regularly

Once the balances make sense, ratios help turn numbers into insight.

Quick Ratio

By comparing:

• Cash
• Accounts receivable
• Accounts payable

You can assess whether the business could meet short-term obligations quickly.

Accounts Receivable Days

This shows how long it takes, on average, to collect customer payments.

A high number indicates a collections issue — even if cash is currently sufficient.

Accounts Payable Days

This shows how quickly the business pays suppliers.

If customers take far longer to pay than you take to pay suppliers, cash flow pressure is likely.

Debt-to-Equity Ratio

This helps assess how the business is financed and whether debt levels are reasonable for the industry.

Importantly, there is no universal “good” or “bad” ratio. Industry, seasonality, and business model all matter.

Accrued Expenses and Deferred Revenue: Double-Check These

Accrued expenses should be reviewed to ensure:

• The related bill hasn’t already been received
• Expenses haven’t been doubled

Deferred revenue represents money received for work not yet performed. The key question is whether the business has the capacity and systems in place to deliver what’s been promised.

How CFOs Use the Balance Sheet Over Time

The real power of balance sheet analysis comes from consistency.

By:

• Walking through every line regularly
• Making notes of follow-ups
• Running the same ratios month after month

Patterns begin to emerge. Problems become easier to spot early before they turn into cash flow crises or missed opportunities.

To analyze your balance sheet like a CFO:

• Treat it as a snapshot, not a performance report
• Question every balance
• Validate that assets are real and collectible
• Ensure liabilities are complete and accurate
• Run ratios consistently
• Compare results over time and against industry norms

The more often you review your balance sheet this way, the clearer the story becomes and the more confidently you can make decisions that support sustainable growth.

Helpful Resources

Compare QuickBooks Online Plans: https://www.mycloudbookkeeping.org/quickbooks-plan-comparison

Download the Free Month-End Checklist for Small Business: https://learn.mycloudbookkeeping.org/small-business-month-end-checklist

You may have noticed lately I have been creating videos on more advanced accounting topics – this is one of those videos – on one of the most important reports.

So we’re gonna start right here on the balance sheet. Now the interesting thing about the balance sheet is that it is at a point in time. Here we have it as of December 31st, 2025. So I’m gonna change that immediately so that it’s at year end. I thought I’d already done that. So let’s pop here. It’s now year end, and we are looking at a balance sheet at the end of December.

So what that means is that every item that we look at in the balance sheet represents the value on that particular day. So on December 31st, 2025, this is either the amount we own, if it’s an asset, or owe, if it is a liability. So it’s very important to understand the distinction between the balance sheet and the income statement.

The income statement records activity. The balance sheet is a snapshot — it’s a photograph.

The next important distinction when we’re looking at the balance sheet is this idea of current and non-current. So here we have our current assets, and here we have non-current assets. Typically, your current assets are anything that you expect to see within a year, and the non-current assets are things that you will not be converting to cash within a year.

So let’s scroll down and have a look at the liabilities for the same purpose. Here we have our current liabilities and our non-current liabilities. In the liability section, accounts payable and credit cards will be paid almost immediately. Accrued expenses, deferred revenue, and sales tax are also items you would expect to pay within the year.

However, the note payable of $20,000 would typically be payable over a longer period of time. At the end of the year, it’s quite common to move a portion of that note payable into current liabilities. We’re not going to get into that level of detail today.

Now, another thing we’re going to check — which we don’t usually have to worry about in accounting software, but you might if you’re consolidating multiple entities — is to make sure the balance sheet balances. Of course, this one does.

Next, we want to ask: are we able to pay our bills right now? If we had to pay everything today, we can see that we owe approximately $4,300 and we have about $32,000 in the bank. So we’re okay if we suddenly had to pay everything tomorrow.

The next place we’re going to look is accounts receivable, because this tells us how much money we have coming in. Sales tax payable is also important, but typically that’s not due immediately.

Next, we’ll look at profitability. We can see here that profit for the year is only $2,800. I’m going to pop over to the profit and loss report. I always like to look at the profit and loss by month, because it tells a story — there’s a rhythm and a pattern.

When we look at net income by month, we can see that it fluctuates quite a bit. You can scroll up and investigate anything that needs attention. I won’t go deeper into this here, as I have another video dedicated to the income statement. Our focus today is the balance sheet.

Now that we’ve looked at cash, accounts receivable, and accounts payable, I want to touch on ratios.

Looking at your checking account, accounts receivable, and accounts payable together gives you what’s called your quick ratio. This answers the question: if we had to act quickly today, would we have enough money?

I’ve calculated that ratio, but a CFO wouldn’t stop there. They would look at what actually makes up accounts receivable. So I’ve opened the accounts receivable aging summary report.

We can see that some balances are current, some are 31 to 60 days old, and there’s even an amount over 90 days. Whoever is responsible for collections — whether that’s accounts receivable or sales — should be following up on these. The older receivables get, the harder they are to collect. In this case, the $250 that’s very old should likely be written off.

Inventory is another important item. We want to make sure that the inventory reflected on the balance sheet is inventory we expect to sell. If it’s not sellable, it shouldn’t sit on the balance sheet as an asset, because it’s not something we can convert to cash.

This company’s non-current assets consist of machinery and equipment. We need to ensure that the value shown — $2,300 — is accurate. In larger companies, this could be a significant number. If equipment becomes obsolete or unusable, its value needs to be written down so the balance sheet reflects reality.

Next, we look at accounts receivable days outstanding. We take the $21,000 in receivables and compare it to annual revenue of $79,000. When we calculate this, we find it takes about 99 days on average to collect receivables.

This tells us something important: while this company may not have a cash problem, it does have a collections problem. Customers are taking far too long to pay.

Now let’s look at accounts payable. We have about $22,000 outstanding, and roughly $49,800 in credit purchases. This tells us we are paying suppliers in about 16 to 17 days. So customers take 99 days to pay us, and we pay suppliers in just over two weeks. Cash flow could be improved by collecting faster and paying slightly slower.

Next, we review accrued expenses. We need to make sure we haven’t received the bill for these expenses already. Otherwise, we may have doubled up the expense by recording both the accrual and the bill.

Deferred revenue is next. Depending on your business, this could represent SaaS revenue or payments received for services not yet delivered. You want to ensure you have the systems and people in place to deliver those services properly.

So to summarize: walk through every line in your balance sheet and make sure it’s accurate. Make a list of items to follow up on. Then run your ratios. When you run ratios consistently, you build history — and everything makes more sense when you have something to compare it to.

Run the quick and current ratios for cash flow, review accounts receivable and accounts payable days to understand how efficiently money is moving, and keep an eye on the debt-to-equity ratio.

Whether these numbers are “good” or “bad” depends on many factors — your industry, seasonality, and whether you sell on cash or credit. It’s helpful to compare your results to others in your industry, including public company financials.

And the more you look at these numbers, the clearer the picture becomes. Over time, you’ll be able to spot problems early — while there’s still time to course correct.

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