AdminA balance sheet summarizes a business’s financial condition at a specific point in time. It’s the CliffsNotes version of a company’s financial story, listing its assets (items that can be turned into cash), its liabilities (payment obligations) and its shareholders’ equity (the value of your ownership stake in the company).
It’s important to note that a balance sheet doesn’t include detailed information about your business’s income or expenses. This is captured in a business’s profit and loss statement.
To prepare a balance sheet, you must first decide on a reporting date. Larger companies generally create them monthly, while smaller businesses and startups typically do so quarterly. Once you’ve chosen a date, you must identify all the company’s assets on that date. This includes cash and cash equivalents, such as checking and instant-access deposit account balances, petty cash, and checks that haven’t been deposited yet. It also includes accounts receivable, such as the total amount that customers owe but haven’t paid yet, plus marketable securities and inventory.
Once you’ve identified all your current assets, you must subtract the company’s current liabilities from its total assets to arrive at a net figure for each. You can then use this number to calculate various metrics, including liquidity ratios and debt-to-equity ratios.
The remaining portion of a balance sheet reports a firm’s noncurrent assets, such as office equipment and property, plant and equipment (PP&E), plus its long-term investments and any stocks or bonds it holds. It also lists the company’s total liabilities, split into categories for current and noncurrent, and its total shareholder’s equity, which includes common stock value and retained earnings. Bilanz