Balance Sheets

Overview

A balance sheet explains the financial situation of a company. Balance sheets are important for executives, business employees, and investors. They provide an accurate picture of a company's financial stability and economic condition. Balance sheets may be of interest to anyone who is examining a particular company.

Balance sheets include the following parts: assets, liabilities, and ownership. Assets include any item of economic value that is owned by the business. The debts or obligations owned by the company are liabilities. Ownership describes the exclusive right to the property by the company or business. Each of parts reflects the financial health of the business and its various business dealings.

A business's financial health is measured by the difference between assets and liabilities. When assets exceed liabilities, the company is financially sound. When liabilities exceed assets, the company is in a poor monetary situation.

How It Works

To prepare a balance sheet, you should first list your company's assets, and then make a note of the business's savings. Note down the business's checking account balance. Make a list of assets including equipments purchased, insurance paid, or money that has to be paid to the company. Property, investments, cash equivalents, and biological assets should be included in this list.

In the liabilities section, write down the bills that need to be paid regularly and those that are unpaid at the moment. Add capitals stock, expenses, and any losses that you may have incurred during business transactions.

Calculating the total amount of assets and liabilities will explain your company's economic position.

Benefits

A balance sheet can help your business apply for loans. You can also use a balance sheet to show your customers and investors that your company is financially sound. The greatest benefit of preparing balance sheets is that you will be able to assess the economic situation of your business and look for areas of improvement.

Costs

If your business is small with few transactions, then you can maintain the balance sheet on an electronic spreadsheet or make a hard copy using ledgers. Free balance sheet templates are available online.

Timing

Balance sheet should be prepared once a year. If you want to regularly assess the financial condition of your company, then you can prepare balance sheets on a monthly, quarterly, or half-yearly basis.