What Is A Balance Sheet? (Example Included) (2024)

A balance sheet is a comprehensive financial statement that gives a snapshot of a company’s financial standing at a particular moment. A balance sheet covers a company’s assets as defined by its liabilities and shareholder equity.

Balance Sheet Time Periods

When investors ask for a balance sheet, they want to make sure it’s accurate to the current time period. They might want to see a past balance sheet as well. It’s important to keep accurate balance sheets regularly for this reason.

Assets

Assets are any resources your company owns that holds value. When setting up a balance sheet, you should order assets from current assets to long-term assets. Long-term assets can’t be converted immediately into cash on hand. They’re important to include, but they can’t immediately be converted into liquid capital.

There are a few different types of assets to list that your company probably has on-hand:

• Liquid assets: Cash and cash equivalents, such as certificates of deposit (CDs)
• Accounts receivable (A/R): Money owed to your company
• Marketable securities: Liquid assets that are readily convertible into cash (generally reported under cash and cash equivalents)
• Inventory: Any products you have available for sale
• Prepaid expenses: Rent, insurance and contracts with vendors

These are examples of long-term assets:

• Investments or securities that can’t be liquidated within the next year
• Fixed assets: Land, machinery and buildings
• Intangible assets: Intellectual property, brand awareness and company reputation

Want more information? Here’s everything you need to know about assets.

Liabilities

A liability is money that your company owes to any outside entity. Liabilities refer to basic aspects of your business: taking in money, loans, providing services and everything else your business does.

Liabilities are categorized as current and long-term as well. Current liabilities are customer prepayments for which your company needs to provide a service, wages, debt payments and more.

On the other hand, long-term liabilities are long-term debts like interest and bonds, pension funds and deferred tax liability.

Shareholder Equity

Finally, shareholder equity refers to your company’s net assets. The shareholder equity comprises the following:

• Money generated by a company
• Money put into the business by its owners and shareholders
• Any other capital put into the business

You can calculate total equity by subtracting liabilities from your company’s total assets.

When creating a balance sheet, start with two sections to make sure everything is matching up correctly. On one side, you’ll have the business’s assets. On the other side, you’ll put the company’s liabilities and shareholder equity.

The numbers should match up exactly: the total assets must be equal to the liabilities and shareholder assets. If these numbers aren’t the same, there might be an issue with your calculations or a missing asset or liability. Before sharing with any possible investors, make sure to check over your balance sheet several times.

Balance sheets are important because they give a picture of your company’s financial standing. Before getting a business loan or meeting with potential investors, a company has to provide an up-to-date balance sheet. A potential investor or loan provider wants to see that the company is able to keep payments on time.

Department heads can also use a balance sheet to understand the financial health of the company. Looking at the balance sheet and its components helps them keep track of important payments and how much cash is available on hand to pay these vendors.

Overall, a balance sheet is an important statement of your company’s financial health, and it’s important to have accurate balance sheets available regularly.

This is an example of a basic balance sheet and what’s included.

Download Balance Sheet Example

In this example, the imagined company had its total liabilities increase over the time period between the two balance sheets and consequently the total assets decreased.

Bottom Line

A balance sheet is a financial document that you should work on calculating regularly. If there are discrepancies, that means you’re missing important information for putting together the balance sheet.