Balance Sheet A balance sheet provides a snapshot of a business' health at a point in time. It is a summary of what the business owns (assets) and owes (liabilities). Balance sheets are usually prepared at the close of an accounting period such as month-end, quarter-end, or year-end. New business owners should not wait until the end of 12 months or the end of an operating cycle to complete a balance sheet. Savvy business owners see a balance sheet as an important decision-making tool.
Over time, a comparison of balance sheets can give a good picture of the financial health of a business. In conjunction with other financial statements, it forms the basis for more sophisticated analysis of the business. The balance sheet is also a tool to evaluate a company's flexibility and liquidity.
A balance sheet is a summary of a firm's assets, liabilities and net worth. The key to understanding a balance sheet is the simple formula:
All balance sheets follow the same format: If it is in two columns, assets are on the left, liabilities are on the right, and net worth is beneath liabilities. If it is in one column, assets are listed first, followed by liabilities and net worth.
Here is a sample balance sheet for the Doodads Company.
| Assets | |
| Current Assets | |
| Cash On Hand | |
| Cash in Bank | |
| Accounts Receivable | |
| Merchandise Inventory | |
| Prepaid Expenses | |
| Rent | |
| Total Current Assets | |
| Fixed assets | |
| Equipment and Fixtures (less Depreciation) | $ 1,200 |
| Total Assets | |
| Liabilities | |
| Current Liabilities | |
| Accounts Payable | |
| Notes Payable, Bank | |
| Accrued Payroll Expenses | |
| Total Current Liabilities | |
| Long-term liabilities | |
| Notes Payable, 1998 | |
| Total Liabilities | |
| Net Worth* | |
| Total Liabilities and Net Worth |
| *Net Worth = Assets - Liabilities |
