Balance Sheet also known as Statement of Financial Position is a financial statement indicating the Assets, Liabilities and Equity of on business. Assset should be equal to Liabilities plus Equity.
A Balance Sheet is a financial document that provides a business an overview of its financial well-being by showing its assets or the properties it owns and liabilities or its debts or financial obligations at a specific point in time. It helps a company understand the relationship between its income and expenses to influence the way it manages finances to ensure continuous profitability. Using a balance sheet can determine the equity or worth of a business.
As a powerful document that lets a business work with its finances to establish a workable balance, a balance sheet affects the way a company handles its finances and forecast into the future. Also called the statement of financial position, it reveals the overall financial health of a business at the end of a reporting period, such as a year, quarter, or month. Completing the sheet for the purpose of comparing it to previous or future balance sheets allows a business to examine financial changes over time.
The information provided on a balance sheet can help a business calculate key financial ratios, including the debt-to-equity ratio that shows its ability to pay for its debts with equity, if applicable. In addition, it shows the ratio of current assets and current liability, enabling a business to determine if it has the capability to pay its debts within a period of time.
Aside from classified use, a balance sheet may also be used as an essential document for getting investors, securing a loan, and even selling a business. Investors and creditors may use this financial document to look at the financial position of a company for insight as to how efficiently it uses its resources.
Before filling out a balance sheet template, you first need to understand its sections. You will see three sections on a balance sheet document — Assets, Liabilities, and Equity.
Assets are the things a business owns that have a monetary value.
The assets section is organized from current to non-current. Both categories contain subcategories for better identification of assets. For current assets, it includes Cash on Hand, Cash on Bank, and Accounts Receivable, while non-current assets include subcategories such as Notes Receivable, Furniture and Fixture, and Property, Plant, and Equipment.
Liabilities include everything a business owes to outside parties. It may be financial debts or particular obligations.
The liabilities section, similar to the assets section, is organized from current to non-current. Both categories contain subcategories for better identification of liabilities. For current liabilities, it includes Accounts Payable, Taxes Payable, Salary Payable, Rent Payable, Unearned Revenue, and Accrued Expenses, while non-current liabilities include Long-Term Debts, Bond Payable, and Loan Payable.
Equity is all the retained earnings when you subtract the total liabilities of a business to its total assets. It is the money currently held by a company. For sole proprietorships, it is called “Owner’s Equity” and for corporations, it is called “Stockholders’ Equity.”
The equity section includes Capital, Additional Paid-In Capital, and Retained Earnings.
Below is a guide to help you fill out the Balance Sheet template.
The topmost part of a Balance Sheet should show the name of the company and its business address. Then, determine the period of evaluation.
For the Assets section, depending on the category and subcategory of assets, provide the total amount on their respective fields. Compute for the Total Assets Amount.
For the Liabilities section, depending on the category and subcategory of liabilities, provide the total amount on their respective fields. Compute for the Total Liabilities Amount.
For the Equity section, depending on the category of the equity, provide the total amount on the respective fields. Compute for the Total Equity Amount.
Once you have computed for the total amounts of each section, compute for the Total Liabilities and Equity Amount.