Financial management is an essential process for any business or individual who would like to put their finances in order. Without it, a company may not be able to avert plunging into financial problems, threatening its existence. With that said, a balance sheet is an extremely crucial tool in financial management. For those who don’t know what a B.S is, this is simply a statement, showing the assets, liabilities, and capital of an entity or individual at a given point in time. Furthermore, the statement details the balance of income and expenditure over the preceding period.
In addition, it shows the net worth of an individual or entity, which is also known as “shareholder’s equity” by subtracting the total liabilities from the total assets.
Balance Sheet Essentials
The standard formula for creating a balance sheet is Assets = Liabilities + Owner’s Equity.
Assets are simply items of properties possessed by a person or an entity. These items, which are often regarded as having value and available to offset debts and commitments, can be broadly categorized into; current assets and long-term assets. The former refers to short-term assets that are expected to be turned to cash within one year or less. The latter, on the other hand, is the opposite of the latter. In other words, these are assets not intended to be converted into cash within one year.
Nonetheless, liabilities are things an individual or entity owes, typically a sum of money. Just like assets, liabilities can be broadly split into two categories; current liabilities and long-term liabilities. Current liabilities are those that must be settled within one year or less of the balance sheet date. Long-term liabilities, on the other hand, are those intended to be paid off within a period that is longer than one year.
Nevertheless, owners’ equity is ownership of assets, which may have debts or other liabilities attached to them. It’s essentially the amount left over when you subtract total liabilities from total assets.
Balance Sheet Examples & Templates
Here are some examples and templates for balance.
Balance Sheet Example
Balance Sheet Format
Balance Sheet for a Small Business
Personal Balance Sheet
Why Is a Balance Sheet Important for Businesses?
A balance sheet gives a financial summary of a business. Nonetheless, this information can help business leaders make well-informed company growth decisions. Apart from that, it can be used by lenders to determine whether the company is worth lending to or not.
Company Balance Sheet Sample
Simple Bank Balance Sheet
Example of Balance Sheet
It balances when the total amount of assets equals the total amounts of liabilities and owner’s equity, combined.
The four common types of financial statements available are: income statement, the balance sheet, the cash flow statement, and the statement of shareholders’ equity.
A balance sheet is used to show the assets, liabilities, and capital of a company or person at a given point in time. This information can be used by the entity in making strategic growth decisions and lenders in determining whether to lend credit to the entity or not.