What Is A Balance Sheet & How To Create A Balance Sheet

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Every business should create and maintain a balance sheet. But not many small business owners know what exactly a balance sheet is, and how to maintain it. This tutorial explains what is a balance sheet, and how to create a balance sheet for your business or organization.

Definition Of A Balance Sheet

A balance sheet is a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time. The balance sheet shows the balance of income and expenditure over the preceding period. The business period can be any period that is important to measure for your business. The assets, liabilities and ownership equity are all a part of the balance sheet.

The purpose of maintaining a balance sheet is to have a snapshot of the company’s financial situation.

Sections Of A Balance Sheet: Assets, Liabilities and Ownership Equity

Usually, the business assets are first. They are typically ordered by how liquid these assets are. The next section of a balance sheet is the liabilities section. And the last section of the balance sheet is the section detailing the ownership structure of the business partners.

The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company.

In a typical balance sheet, you would show the assets in one section, and liabilities and net worth in the other section. Splitting the assets and liabilities that way helps to show the balance between them.

Let’s Take A Look At The Assets Section

The assets section is broken up into two parts: the current and non-current assets. The current assets are cash and cash equivalents, accounts receivable, and prepaid expenses. The non-current assets are property and equipment, investment property, and intangible assets.

Let’s Take A Look At The Liabilities Section

The items that would go into the liabilities section of your balance sheet are accounts payable, provisions for warranties or court decisions, current and deferred taxes, revenue paid by customers for which the service is yet to be delivered.

Let’s Take A Look At The Equity Section

The net assets shown by the balance sheet equals the third part of the balance sheet, which is the equity. The equity is the issued capital and reserves attributable to equity holders of the parent company (controlling interest), and the non-controlling interest in equity.

How To Write Your Balance Sheet

If you are just starting your business, your balance sheet is very simple. There are only a few assets, a few liabilities, and that makes the math very simple. If you are in the midst of growing a mid-size or a large business, in most cases you would have a CPA (an accountant) help you create your balance sheet. Large companies often have separate balance sheets for different divisions of the business.

A common practice is to look at your balance sheets throughout periods of time. That will give you a sense of whether your business is going better or worse from last business quarter, or the previous years.

A small business balance sheet lists current assets such as cash, accounts receivable, and inventory, fixed assets such as land, buildings, and equipment, intangible assets such as patents, and liabilities such as accounts payable, accrued expenses, and long-term debt. 

Further Business Resources

I created mobile apps which can help you make your business ideas better, and improve your business ideas with some fundamentals. Here is my iOS (iPad or iPhone) business idea app. And here is my Android business idea app.

For more business-starting resources, please take a look at our business planning mobile apps. Here is the iOS business plan app and here is the Android business plan app.  Additionally, here is the iOS marketing app. And here is the Android marketing app. And here are our business apps on the Kindle. And here is an article where I give the argument that our Android apps are the best business apps on Android.

And please check out and subscribe to my YouTube channel where we cover many marketing topics.

Author: Alex Genadinik

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