The balance sheet is a very important financial statement that summarizes a company's assets (what it owns) and liabilities (what it owes). A balance sheet is used to gain insight into the financial strength of a company. You can also see how the company resources are distributed and compare the information with similar companies.

No balance sheet statement is complete (in my opinion) without an income statement to go along with it. As a small business owner, I find the income statement to be more useful in the general operation of the business, but the balance sheet is still a critical accounting tool that provides a key piece of information.

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The balance sheet informs company owners about the net worth of the company at a specific point in time. This is done by subtracting the total liabilities from the total assets to calculate the owner's equity, also known as shareholder's equity (for corporations) or simply the net worth.

Balance Sheet

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Sample Balance Sheet
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Download our free Balance Sheet template, designed for the small-business owner. It includes common financial ratios and works well for a two-year comparison. See below for more information on the different asset and liability categories.

Balance Sheet Essentials

The Accounting Equation: Assets = Liabilities + Owner's Equity

Current Assets

The term current in a balance sheet generally means "short-term" which is usually one year or less. Common current assets includes cash (cash, coin, balances in checking and savings accounts), accounts receivable (amounts owed to your business by your customers usually within 10-60 days), inventory (goods for sale), and prepaid expenses (e.g. insurance and rent).

Long-Term Assets

These assets include long-term investments, cost of property and equipment (e.g. land, buildings, equipment, tools, furniture, computers, vehicles, etc.) offset by accumulated depreciation, intangible assets (e.g. patents, contracts, trademarks, copyrights, and goodwill), and other assets (like deferred income tax arising from the loss of value of property that cannot be reported as a tax deduction until the property is sold).

Current Liabilities

These include the obligations to be paid within one year, including accounts payable, short-term loans, income taxes payable, wages, unearned revenue (e.g. service contracts), and the current portion of long-term debt (e.g. mortgage payments payable within 12 months).

Long-Term Liabilities

These include long-term debt (e.g. notes, mortgages), capital lease obligations (e.g. leases structured as loans), and deferred income tax (e.g. the tax due on the increase in value of an investment security that isn't paid until the security is sold).

Owner's Equity (or Stockholders' Equity for corporations)

This is basically the amount left over when you subtract Total Liabilities from Total Assets. In includes the owner's investment(s) and retained earnings (the portion of the profits reinvested in the business). For corporations, there are usually more categories (see the references below).

Balance Sheet References


 

Disclaimer: This balance sheet spreadsheet and the information on this page is for illustrative and educational purposes only. We do not guarantee the results or the applicability to your financial situation. You should seek the advice of qualified professionals regarding financial decisions.

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