A balance sheet is one of the most important of the four basic financial statements. It offers a quick look into your business’s financial health showing assets, liabilities and net worth. Use it to see how your company is performing in the current period, how it performed during the previous period, and how you can expect it to perform in the immediate future.
Preparing Your Balance Sheet
The key formal is Assets = Liabilities + Owner’s Equity. In just a few steps you can create a basic balance sheet for your organization.
1. Choose Your Reporting Date & Period
A balance sheet is used to determine the financial data for a company for a specific date, so the first step is to pick your date and reporting period. Typically, the report date is the last day of the reporting period. Many people choose to report on a quarterly basis. If that is the period you choose, your report dates would be March 31, June 30, September 30 and December 31.
2. Identify, List & Total Assets
Once you’ve picked your reporting date, tally your assets as of that date. List all your company assets, splitting them into two categories: Current & Non-Current.
Current Assets Include:
- Cash and cash equivalents
- Short-term securities
- Inventory
- Accounts receivable
Non-Current Assets:
- Long-term securities
- Property
- Goodwill
- Intangible assets
Subtotal your current and non-current assets and total them together.
3. Identify, List & Total Liabilities
Next, you’ll want to do the same with your liabilities, listing all of them for the reporting period and splitting them again into current and non-current.
Current Liabilities Include:
- Accounts payable
- Accrued expenses
- Deferred revenue
- Current portion of long-term debt
- Short-term debt
Non-Current Liabilities Include:
- Deferred revenue (non-current)
- Long-term lease obligations
- Long-term debt
Subtotal your current and non-current liabilities and total them together.
4. Calculate Shareholders’ or Owner’s Equity
For a sole proprietor or company owned by a single person, this portion is simply the owner’s capital. For larger companies, this includes contributed capital and retained earnings.
Common Line Items for this Section Include:
- Common stock
- Preferred stock
- Treasury stock
- Retained earnings
5. Add Liabilities to Equity and Compare to Assets
Once you’ve gathered all the information, it’s time to balance your balance sheet. Add your total liabilities to your shareholders’ or owner’s equity and compare it to your total assets. The figure should be equal. If it’s not, there are a few things to double check.
- Do you have all the data, or did you miss any liabilities, assets, or equity data?
- Did you incorrectly enter any of the data?
- Is your data correct? Inventory can be off and currency exchange rates are easy to miscalculate.
Get Help for Your Small Business
While a balance sheet can provide valuable insights into how your business is doing, they aren’t always the easiest to prepare or understand. But we can help. We are a licensed accounting firm with an office located in Gallup, New Mexico. We provide businesses and individuals with high-quality professional accounting including monthly financial statements, bookkeeping, tax strategies, and financial management solutions. Contact us today for a free consultation.