Tips For Creating A Small Business Balance Sheet

Blog

A small business balance sheet statement provides you a snapshot of your company's financial status. This statement summarizes the company's assets and liabilities to arrive at a net worth. Understanding what each section of the statement includes and how all of the sections work together will help you build solid financial statements. Here's a look at what you should know before building a balance sheet for your company.

Section 1 – Assets

Assets comprise the first section of the balance sheet. This section details the company's use of funds for acquisition of various assets. The company's assets are the valuable items that the business owns.

• Current Assets: The current asset section includes those things that are short-term, or will mature within the year. Current assets should include the company's cash, accounts receivable, notes receivable and inventory. You should also include any prepaid expenses in this section.

• Fixed Assets: A fixed asset is a physical asset that has a usable life beyond the current year. This includes land, buildings, furniture and equipment.

• Total Assets: This section is the sum of your company's current and fixed assets.

Section 2 – Liabilities

The company's liabilities represent the company's creditors and investors.

• Current Liabilities: Like current assets, the current liabilities include those bills that are expected to come due during the current year. These accounts typically include accounts payable, accrued expenses and notes payable.

• Non-Current Liabilities: These liabilities are ones that will not come due in the current year. This includes long-term debts and notes payable to shareholders, officers and others. The long-term debt figures typically include loans such as those for working capital or for long-term asset purchases. Notes payable to shareholders, officers and others will represent any investments that these individuals have put into the business. For example, a business owner can loan his or her business money and then repay that loan over time under non-current liabilities.

• Total Liabilities: This section lists the sum of the company's liabilities, both current and non-current. It paints a clear picture of how much the company has outstanding in creditor claims.

Section 3 – Equity

The third and final section of the statement is the equity section. A company's equity represents the amount left when you reduce the assets by the total liabilities. Ideally, the company will have more assets than liabilities. Otherwise, the company owes more than it has available, which can be financially disastrous.

If you aren't comfortable creating statements like these on your own, work with a small business accounting professional (such as Teri J Henderson, CPA, P.A.) to help you get it done right.

15 June 2015