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Balance Sheet

A balance sheet is a statement of finance that shows a company's assets, liabilities, and shareholders' equity at a given point in time and provides a basis for calculating rates of return and assessing its capital structure. It's a financial statement that shows what a firm owns and owes, as well as how much money shareholders have invested.

What is a balance sheet?

One of the three fundamental financial statements used to analyze a corporation is the balance sheet. When conducting fundamental analysis or generating financial ratios, the balance sheet is employed with other essential financial documents such as the income statement and statement of cash flows.

The balance sheet is a snapshot of a company's financial situation (what it owns and owes) at publishing. Financial ratios are calculated using balance sheets and other financial documents by fundamental analysts.

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Formula Used for a Balance Sheet

The following accounting equation applies to the balance sheet: assets on one side, liabilities + shareholders' equity on the other:

Assets = Liabilities + Shareholders' Equity

This formula is self-explanatory: a corporation must pay for its assets (liabilities) by borrowing money or taking money from investors by issuing shareholders' equity.

Balance Sheet Template

Balance Sheet
	FY-2016	FY-2017
Asset Type	Prior Year	Current Year
Current Assets	0	0
Fixed Assets	0	0
Other Assets	0	0
Current Liabilities	0	0
Long-term Liabilities	0	0
Owner Equity	0	0
Total Assets	0	0
Total Liabilities & Stockholder Equity	0	0
Balance	0	0

Assets
		FY-2016	FY-2017
Asset Type	Description	Prior Year	Current Year
Current Assets	Cash	0	0
Current Assets	Investments
Current Assets	Inventories
Current Assets	Accounts’ receivable
Current Assets	Pre-paid expenses
Fixed Assets	Property and equipment
Fixed Assets	Leasehold improvements
Fixed Assets	Equity and other investments
Fixed Assets	Less accumulated depreciation (Negative Value)	0	0
Other Assets	Charity
Total Assets		0	0

Liabilities
		FY-2016	FY-2017
Liability Type	Description	Prior Year	Current Year
Current Liabilities	Accounts payable		0
Current Liabilities	Accrued wages
Current Liabilities	Accrued compensation	0
Current Liabilities	Income taxes payable
Current Liabilities	Unearned revenue
Long-term Liabilities	Mortgage payable
Owner Equity	Investment capital		0
Owner Equity	Accumulated retained earnings
Total Liabilities & Stockholder Equity		0	0

Balance Sheet Example

For example:

A company's assets, specifically the cash account, will increase by $4,000 if it takes out a five-year, $4,000 loan from a bank. The long-term debt account, in particular, will increase by $4,000, bringing the two sides of the equation into balance. The company's assets and shareholders' equity will increase by $8,000 if it takes $8,000 from investors. All revenues generated by the company that exceeds its expenditure will be deposited in the shareholders' equity account. These revenues will be offset by assets such as cash, investments, inventory, or some other type of asset.

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How to Read a Balance Sheet

When it comes to analyzing a company's financial health, reading a balance sheet is critical. One of the three important financial statements is the balance sheet, commonly known as the statement of financial status. It is a financial statement that describes a company's financial status at a specific point in time. The balance sheet differs from the other key financial statements in that it depicts the flow of money via different accounts over time. Assets, Liabilities, and Shareholder's Equity are the four primary components of the balance sheet. The balances of the numerous accounts under each topic are listed in the first three sections.

1. Assets

The asset accounts of the business are listed in the assets part of the balance sheet. These are accounts that generate future cash inflows, such as accounts receivable, or accounts used in the firm, such as property, plant, and equipment (PP&E). Current Assets and Non-Current Assets are the two sub-sections of the section.

2. Liabilities

The business's liability accounts are listed in the liabilities section of the balance sheet. These are the business's responsibilities to other parties that result from normal business operations and funding. Current Liabilities and Non-Current Liabilities are the two subsections of this section.

3. Shareholder's Equity

The balance sheet's final main section is shareholder's equity. This section highlights the value that the company's stockholders receive. It contains accounts like paid-up capital in the form of common and preferred shares, retained earnings, cumulative other comprehensive income, contributed surplus, and so on.

What does a Balance Sheet Show?

A balance sheet is a list of all of your company's assets, or what it owns, and liabilities, or what it owes. It shows you how much money you'd have leftover if you liquidated all of your assets and paid off all of your debts at any given time, as well as your 'owner's equity.

How to Make an Ideal Balance Sheet

1. Decide on the reporting date and timeframe

A balance sheet is used to show a company's total assets, liabilities, and shareholders' equity as of a specified date, known as the reporting date. The reporting date is frequently the last day of the reporting period.The majority of businesses, particularly those that are publicly traded, will report every quarter. The reporting date will almost always fall on the last day of the quarter in this case:

Q1: March 31
Q2: June 30
Q3: September 30
Q4: December 31

Companies that report on an annual basis typically select December 31 as their reporting date, though they can use any data they want. After the reporting period has concluded, it's not uncommon for a balance statement to take a few weeks to prepare.

Make a list of your assets

You'll need to count your assets as of that day after you've determined your reporting date and period. Assets are often listed on a balance sheet in two ways: individual line items and, secondly, total assets. Splitting assets into multiple line items will make it easier for analysts to comprehend what they are and where they came from; ultimate analysis will involve tallying them all together. Assets are frequently divided into the following categories:

Current Assets:
cash equivalents
Marketable short-term securities
Accounts payable
Inventories

Additional current assets

Non-current Assets:
Marketable long-term securities
Property market
Generosity
Intangible property
Other long-term assets

Both current and non-current assets should be subtotaled before being summed.

Identify Your Liabilities

Similarly, you will need to identify your liabilities. Again, these should be organized into both line items and totals, as below:

Current Liabilities:
Payables
Expenses that have accumulated
Revenue that has been deferred
Amount of long-term debt owed now
Other current liabilities
Non-Current Liabilities:
Revenue that has been deferred (non-current)
Long-term lease commitments
Debt that is long-term
Other long-term liabilities

These should be subtotalled and then summed together, much like assets.

Calculate Shareholders' Equity

If a single person owns a firm or organization, the shareholders' equity will be quite easy. If the company is publicly traded, the computation may get more complicated as various stock forms have been issued. The following are examples of line items found in this portion of the balance sheet:

Shares of common stock
Shares of preferred stock
Treasury bonds
Earnings retained

Compare Total Liabilities to Total Shareholders' Equity and Assets

To guarantee that the balance sheet is balanced, total assets must be compared to total liabilities plus equity. You'll need to add liabilities and shareholders' equity together to complete this.