Balance sheets provide a snapshot of a company’s financial condition at a specific moment. Balance sheets follow a common format and include a company’s assets, liabilities and owners’ equity or net assets. Balance sheets are generally prepared monthly, quarterly, semi-quarterly and annually.
Things You'll Need
- 10-Key Calculator
- Accounting Software or Ledger Book
The Balance Sheet
Balance sheets generally use a two- or three-year comparative format, using the same time period for the last one or two years. This provides a great evaluative tool. A comparison of a previous year’s data can show trends in liquidity, solvency and retained earnings. The side-by-side comparison makes your work a lot easier.
The assets section of a balance sheet comes first. The assets are broken down into current assets and long-term assets. Current assets are those that will be used or consumed within one year. Long-term assets will be held for more that one year. List the most liquid assets first. The current assets section will include cash, short-term investments, accounts receivables, inventory, supplies and prepaid expenses. Long-term assets are listed next and include land, buildings, capital improvements, equipment, furniture, vehicles and long-term investments. Some companies list intangible assets including goodwill and trademarks.
Liabilities follow the assets section. Like the assets section, liabilities are listed as current liabilities and long-term liabilities. Current liabilities will be paid within one year, and long-term liabilities will take more than one year to pay. Current liabilities include accounts payable, notes payable, interest payable, taxes payable and accrued payroll. Different types of companies may have additional categories of current liabilities. Long-term liabilities are listed next and will include notes payable, mortgages, judgments and any other liability that will not be paid out within one year.
Owners’ equity is the amount of assets left after the liabilities are subtracted from the assets. The accounting equation is: Assets = Liabilities + Owners’ Equity If the liabilities are equal to or exceed the assets, you have a bankruptcy scenario. The liabilities should always be less than the assets. The owners’ equity is sometimes listed as shareholders’ equity. These terms are interchangeable depending on the type of company.