No matter how big or small your business is, a balance sheet is one of the fundamental financial statements. It is a tool you can turn to as an overview of your company’s assets, liability, and equity at a specific point in time. It allows you to maintain the financial health of your business and will make it easier to identify any problems that may pop up. In this post, we will show you step-by-step how to create a balance sheet for your business.
Determine the Date for Your Balance Sheet
Typically, your balance sheet is created at the end of the month, quarter, or year. So the first step is identifying the date for your balance sheet. For starters, it might be helpful to start by preparing a balance sheet for a month, in particular.
Identify Your Assets
Your business’s assets are the resources that your company owns. Think equipment, inventory, cash, or accounts receivable. Classifying these assets will help you to categorize them into either current or long-term assets. Identifying these will help to give you a better understanding of the financial position of your business.
Calculate Your Liabilities
Assets aside, now’s the time to determine your business’s liabilities. Or what your business owes others. Liabilities, for example, can be a loan that you must pay back. Similarly to assets, you must separate your liabilities into both short and long-term.
Determine Your Equity
Now that you have found your assets and liabilities, you can determine your equity. To do so you simply subtract your liabilities from your assets. Equity in your business could be dividends paid to shareholders, profits to be reinvested, or owner’s equity.
Complete the Balance Sheet
Once you have pulled all of the necessary information together now it is time to assemble your balance sheet. Note, that a balance sheet must ‘balance’. Which means your assets must equal your liabilities plus equity. The layout of a balance sheet will be helpful in understanding your business’s financial health.
By following these simple steps you’ll be well on your way to creating a well-balanced balance sheet. Like most business documents it’s important to keep this up to date. The important insights gained from a balance sheet will help you to make appropriate decisions for your business month over month and year over year.
Written by: Erik Hibbard