A balance sheet is an important document needed to evaluate the financial performance of your business. It can be calculated for a particular period – for a month, quarter, half-year or year. The annual balance sheet will help you to evaluate the overall financial value of your company.
What you need to do first is calculate and determine the assets of your business against its liabilities. The balance sheet must always balance. This means that the total assets must equal the total liabilities plus owner’s equity.
Assets = Liabilities + Owner’s Equity
Assets are your company’s resources. They include money, investments and products your company owns that can be converted into cash: accounts receivable, inventory, land, buildings, equipment, etc. The assets put companies in the financial positive and the assets of a successful company should be greater than the sum of its liabilities.
There are two categories of assets: “Current assets” and “Fixed assets”.
Liabilities are the debt your company owes to its creditors. They are the negative part of the equation and they include operational costs, debt and material expenses. There are two categories of liabilities: “Current Liabilities” and “Fixed Liabilities” (also known as “Long-Term liabilities”).
Most business owners and investors use the balance sheet to calculate the value of the company’s equity. It is the value of the assets minus the liabilities. If this equation results in a negative worth, this is not a good result for your business.
Owner’s Equity = Assets – Liabilities
When you gather the needed, just put it all together and your balance sheet is ready.
You can form your balance sheet in two columns. List the assets in the left column. In the right column list your liabilities at the top and equity underneath it.
You can also put all the information in one column. Just list assets, liabilities, and equity in that order from top to bottom.
Now I’m sure you can conclude creating a balance sheet is no stroll in the park. It’s time consuming, confusing, and even frustrating at times. After years of being in the field, we can definitely agree with you on that one.
That’s why at Daybook Group, we’re offering 20% off the first month of Bookkeeping services for new clients. This way, you can save more time and earn more.
What are you waiting for? Contact Daybook Group today!