business plan balance sheet example

How to write a balance sheet for a business plan

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What is a balance sheet?

Elements of a balance sheet, liabilities, how to write a balance sheet, manage your business finances with countingup.

A balance sheet is one of three major financial statements that should be in a business plan – the other two being an income statement and cash flow statement .  

Writing a balance sheet is an essential skill for any business owner. And while business accounting can seem a little daunting at first, it’s actually fairly simple. 

To help you write the perfect balance sheet for your business plan, this guide covers everything you need to know, including:

• What are assets?
• What are liabilities?
• What is equity?

A balance sheet is a financial statement that shows a business’ “book value”, or the value of a company after all of its debts are paid. 

For those inside the business, it provides valuable financial insights, allowing the owners to assess their current financial situation and plan for the future. 

For external investors, a balance sheet lets them know whether it’s a worthwhile investment.  

Putting a balance sheet together isn’t all that difficult. You just need to know the value of three things:

• Owner’s equity

Once you know these three figures, there’s just a little bit of maths – nothing too scary though.

Assets are items or resources that have financial value. They might be physical items, machinery and vehicles, or they could be intangible items, like copyrights or brand identity .

Assets are separated into two groups based on how quickly you can turn them into cash. There are current assets and fixed assets. 

Current assets are things that are fairly simple to value and sell, such as:

• Stock and inventory
• Cash in the bank
• Money owed to you (through unpaid invoices )
• Customer deposits
• Office furniture, equipment or supplies
• Phones or laptops
• Even relatively trivial items like a coffee machine or pool table

Fixed assets are valuable items that take much longer to sell, such as:

• Property or buildings
• Specialised equipment for your business operations
• Investments
• Vehicles 

On your balance sheet, the asset column is the simplest. All you need to do is list each item your business owns, along with their individual values, in a separate column. Then, add up the values to get a total at the bottom. 

Liabilities are the funds that you owe to other people, banks, or businesses. They can be:

• A business loan (the total, not the monthly payment amount)
• A mortgage or rent payment on a property
• Supplier contracts you owe
• Your accounts payable total
• Other financial obligations, such as paying wages or freelancers for support
• Taxes you’ll owe to HMRC

List these in the same way you did with your assets – on a spreadsheet with their values in a separate column. 

When you know the value of your assets and liabilities, working your equity is simple – it’s just the total value of your assets, minus the total value of your liabilities. 

Record the owner’s equity in the same column as your liabilities. When you add them all up, it should be the same value as your assets. 

After you’ve totalled up your assets, liabilities, and owner’s equity, all that’s left to do is fill in your balance sheet. 

Using a spreadsheet, record your assets on the left and your liabilities and owner’s equity on the right. 

For example, here’s what a balance sheet might look like for a painter and decorator:

If you’ve recorded everything correctly, both sides should have the same total. Whenever you make a change, the balance sheet will change, but it should still be balanced. 

For example, let’s say our painter and decorator sold their equipment. In that case, they’d lose an asset worth £200, but they’d also gain £200 in cash, so the asset total would stay the same. 

Alternatively, let’s say they lost the equipment altogether and got no money for it. In that case, they’d lose £200, leaving their asset total at £5,600. Then, they’d have to adjust the other side, so it remains balanced, like this:

If your two totals are not balanced, it’s most likely for one of these reasons:

• Incomplete or missing information
• Incorrect data entry
• A mistake in exchange rates
• And inventory miscount

Basically, if things don’t look right, try not to panic. It’s normally a simple mistake, so go over the figures again and you’ll find the culprit. 

The trickiest part of writing a balance sheet for a business plan is accurately recording financial information. 

With the Countingup business current account, you’ll have access to a digital record of all your transactions in one simple app, giving you all the financial information you’ll need for a business plan.

Start your three-month free trial today. 

Find out more here .

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What Is a Balance Sheet? Definition, Formulas, and Example

Trevor Betenson

10 min. read

Updated October 27, 2023

Business financial statements consist of three main components: the income statement, statement of cash flows, and balance sheet. The balance sheet is often the most misunderstood of these components—but also extremely beneficial if you understand how to use it.

Check out our free downloadable Balance Sheet Template for more, and keep reading to learn the different elements of a balance sheet, and why they matter.

• What is a balance sheet?

The balance sheet provides a snapshot of the overall financial condition of your company at a specific point in time. It lists all of the company’s assets, liabilities, and owner’s equity in one simple document.

A balance sheet always has to balance—hence the name. Assets are on one side of the equation, and liabilities plus owner’s equity are on the other side.

Assets = Liabilities + Equity

• What is the purpose of the balance sheet?

Put simply, a balance sheet shows what a company owns (assets), what it owes (liabilities), and how much owners and shareholders have invested (equity).

Including a balance sheet in your business plan is an essential part of your financial forecast, alongside the income statement and cash flow statement.

These statements give anyone looking over the numbers a solid idea of the overall state of the business financially. In the case of the balance sheet in particular, what it’s telling you is whether or not you’re in debt, and how much your assets are worth. This information is critical to managing your business and the creation of a business plan.

Among other things, your balance sheet can be used to determine your company’s net worth. By subtracting liabilities from assets, you can determine your company’s net worth at any given point in time.

• Key components of the balance sheet

Typically, a balance sheet is divided into three main parts: Assets, liabilities, and owner’s equity.

Assets on a balance sheet or typically organized from top to bottom based on how easily the asset can be converted into cash. This is called “liquidity.” The most “liquid” assets are at the top of the list and the least liquid are at the bottom of the list.

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In the context of a balance sheet, cash means the money you currently have on hand. In business planning, the term “cash” represents the bank or checking account balance for the business, also sometimes referred to as “cash and cash equivalents” or “CCE.”

A cash equivalent is an asset that is liquid and can be converted to cash immediately, like a money market account or a treasury bill.

Accounts receivable

Accounts receivable is money people are supposed to pay you, but that you have not actually received yet (hence the “receivables”).

Usually, this money is sales on credit, often from business-to-business (or “B2B”) sales, where your business has invoiced a customer but has not received payment yet.

Inventory includes the value of all of the finished goods and ready materials that your business has on hand but hasn’t sold yet.

Current assets

Current assets are those that can be converted to cash within one year or less. Cash, accounts receivable, and inventory are all current assets, and these amounts accumulated are sometimes referenced on a balance sheet as “total current assets.”

Long-term assets

Long-term assets are also referred to as “fixed assets” and include things that will have a long-standing value, such as land or equipment. Long-term assets typically cannot be converted to cash quickly.

Accumulated depreciation

Accumulated depreciation reduces the value of assets over time. For example, if a business purchases a car, the car will lose value as time goes on.

Total long-term assets

Total long-term assets is used to describe long-term assets plus depreciation on a balance sheet.

Liabilities

Like assets, liabilities are ordered by how quickly a business needs to pay them off. Current liabilities are typically due within one year. Long-term liabilities are due at any point after one year.

Accounts payable

Accounts payable is the money that your business owes to other vendors, the other side of the coin to “accounts receivable.” Your accounts payable number is the regular bills that your business is expected to pay.

Pay attention to whether this number is exceedingly high, especially if your business doesn’t have enough to cover it.

Sales taxes payable

This only applies to businesses that don’t pay sales tax right away, for example, a business that pays its sales tax each quarter. That might not be your business, so if it doesn’t apply, skip it.

Short-term debt

This is debt that you have to pay back within a year—usually any short-term loan. This can also be referred to on a balance sheet as a line item called current liabilities or short-term loans. Your related interest expenses don’t go here or anywhere on the balance sheet; those should be included in the income statement.

Total current liabilities

The above numbers added together are considered the current liabilities of a business, meaning that the business is responsible for paying them within one year.

Long-term debt

These are the financial obligations that it takes more than a year to pay back. This is often a hefty number, and it doesn’t include interest. For example, this number reflects long-term loans on things like buildings or expensive pieces of equipment. It should be decreasing over time as the business makes payments and lowers the principal amount of the loan.

Total liabilities

Everything listed above that you have to pay out or back is added together.

This is the sum of all shareholder money invested in the business and accumulated business profits. Owner’s equity includes common stock, retained earnings, and paid-in-capital.

Paid-in capital

Money is paid into the company as investments. This is not to be confused with the par value or market value of stocks. This is actual money paid into the company as equity investments by owners.

Retained earnings

Earnings (or losses) that have been reinvested into the company, that have not been paid out as dividends to the owners. When retained earnings are negative, the company has accumulated losses. This can also be referred to as “shareholder’s equity.”

This doesn’t apply to all legal structures for a business; if you are a pass-through tax entity , then all profits or losses will be passed on to owners, and your balance sheet should reflect that.

Net earnings

This is an important number—the higher it is, the more profitable your company is. This line item can also be called income or net profit. Earnings are the proverbial “bottom line”: sales less costs of sales and expenses.

Total owner’s equity

Equity means business ownership, also called capital. Equity can be calculated as the difference between assets and liabilities. This can also be referred to as “shareholder’s equity” or “stockholder’s equity.”

Total liabilities and equity

This is the final equation I mentioned at the beginning of this post, assets = liabilities + equity.

• How to use the balance sheet

Your balance sheet can provide a wealth of useful information to help improve financial management. For example, you can determine your company’s net worth by subtracting your balance sheet liabilities from your assets, as noted above.

Overall, the balance sheet gives you insights into the health of your business. It’s a snapshot of what you have (assets) and what you owe (liabilities). Keeping tabs on these numbers will help you understand your financial position and if you have enough cash to make further investments in your business.

Perhaps the most useful aspect of your balance sheet is its ability to alert you to upcoming cash shortages. After a highly profitable month or quarter, for example, business owners sometimes get lulled into a sense of financial complacency if they don’t consider the impact of upcoming expenses on their cash flow .

There are two easy-to-figure ratios that can be computed from the balance sheet to help determine whether your company will have sufficient cash flow to meet current financial obligations:

Current ratio

This measures liquidity to show whether your company has enough current (i.e., liquid) assets on hand to pay bills on-time and run operations effectively. It is expressed as the number of times current assets exceeds current liabilities.

The higher the current ratio, the better. A current ratio of 2:1 is generally considered acceptable for inventory-carrying businesses, although industry standards can vary widely. The acceptable current ratio for a retail business, for example, is different from that of a manufacturer.

Current ratio formula

Current Assets / Current Liabilities

Quick ratio

This ratio is similar to the current ratio but excludes inventory. A quick ratio of 1.5:1 is generally desirable for non-inventory-carrying businesses, but—just as with current ratios—desirable quick ratios differ from industry to industry.

Quick ratio formula

Current Assets – Inventory / Current Liabilities

Knowing your industry’s standards is an important part of evaluating your business’s balance sheet effectively.

• The limits of the balance sheet

Remember, the balance sheet alone doesn’t give you a complete view of your business finances. You’ll want to keep tabs on your profit & loss statement and cash flow as well.

Your profit & loss statement will show you the sales you are making and your business expenses and calculates your profitability. This is crucial for understanding the core economics of your business and if you’re building a profitable business, or not.

Your cash flow forecast shows how cash is moving in and out of your business and can help you predict your future cash balances. Fast growth can reduce cash quickly, especially for businesses that carry inventory, so this is a crucial statement to pay attention to as well.

The three statements all work together to provide you with a complete picture of your business.

• Example of a balance sheet

Large businesses will have longer and more complex balance sheets for their businesses, sometimes having separate balance sheets for different segments or departments of their business. A small business balance sheet will be more straightforward and have fewer line items.

Here is a balance sheet from Apple, for example. You’ll see that it includes a complex stockholder’s equity section and several specifically itemized types of long-term assets and liabilities.

Apple’s balance sheet .

You’ll also notice that it says “Period Ending” at the top; this indicates that these numbers are reflective of the time up until the date listed at the top of the column. This terminology is used when you are reporting actual values, not creating a financial forecast for the future.

• Get familiar with your balance sheet

Most companies should update their balance once a month, or whenever lenders ask for an updated balance sheet. Today’s accounting software programs will create your balance sheet for you, but it’s up to you to enter accurate information into the program to generate useful data to work from.

The balance sheet can be an extremely useful financial tool for businesses that understand how to use it properly. If you’re not as familiar with your balance sheet as you’d like to be, now might be a good time to learn more about the workings of your balance sheet and how it can help improve financial management.

Create your balance sheet easily by downloading our Balance Sheet Template , and check out our full guide to write your financial plan.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Trevor is the CFO of Palo Alto Software, where he is responsible for leading the company’s accounting and finance efforts.

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What Is a Balance Sheet?

How balance sheets work, special considerations.

• Why Is It Important?
• Limitations
• Balance Sheet FAQs
• Corporate Finance
• Financial statements: Balance, income, cash flow, and equity

Balance Sheet: Explanation, Components, and Examples

What you need to know about these financial statements

The term balance sheet refers to a financial statement that reports a company's assets, liabilities, and shareholder equity at a specific point in time. Balance sheets provide the basis for computing rates of return for investors and evaluating a company's capital structure .

In short, the balance sheet is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders. Balance sheets can be used with other important financial statements to conduct fundamental analysis or calculate financial ratios.

Key Takeaways

• A balance sheet is a financial statement that reports a company's assets, liabilities, and shareholder equity.
• The balance sheet is one of the three core financial statements that are used to evaluate a business.
• It provides a snapshot of a company's finances (what it owns and owes) as of the date of publication.
• The balance sheet adheres to an equation that equates assets with the sum of liabilities and shareholder equity.
• Fundamental analysts use balance sheets to calculate financial ratios.

Investopedia / Katie Kerpel

The balance sheet provides an overview of the state of a company's finances at a moment in time. It cannot give a sense of the trends playing out over a longer period on its own. For this reason, the balance sheet should be compared with those of previous periods.

Investors can get a sense of a company's financial well-being by using a number of ratios that can be derived from a balance sheet, including the debt-to-equity ratio and the acid-test ratio , along with many others. The income statement and statement of cash flows also provide valuable context for assessing a company's finances, as do any notes or addenda in an earnings report that might refer back to the balance sheet.

The balance sheet adheres to the following accounting equation, with assets on one side, and liabilities plus shareholder equity on the other, balance out:

Assets = Liabilities + Shareholders’ Equity \text{Assets} = \text{Liabilities} + \text{Shareholders' Equity} Assets = Liabilities + Shareholders’ Equity

This formula is intuitive. That's because a company has to pay for all the things it owns (assets) by either borrowing money (taking on liabilities) or taking it from investors (issuing shareholder equity).

If a company takes out a five-year, $4,000 loan from a bank, its assets (specifically, the cash account) will increase by $4,000. Its liabilities (specifically, the long-term debt account ) will also increase by $4,000, balancing the two sides of the equation. If the company takes $8,000 from investors, its assets will increase by that amount, as will its shareholder equity. All revenues the company generates in excess of its expenses will go into the shareholder equity account. These revenues will be balanced on the assets side, appearing as cash, investments, inventory, or other assets.

Balance sheets should also be compared with those of other businesses in the same industry since different industries have unique approaches to financing.

As noted above, you can find information about assets, liabilities, and shareholder equity on a company's balance sheet. The assets should always equal the liabilities and shareholder equity. This means that the balance sheet should always balance , hence the name. If they don't balance, there may be some problems, including incorrect or misplaced data, inventory or exchange rate errors, or miscalculations.

Each category consists of several smaller accounts that break down the specifics of a company's finances. These accounts vary widely by industry, and the same terms can have different implications depending on the nature of the business. But there are a few common components that investors are likely to come across.

 Theresa Chiechi {Copyright} Investopedia, 2019.

Components of a Balance Sheet

Accounts within this segment are listed from top to bottom in order of their liquidity . This is the ease with which they can be converted into cash. They are divided into current assets, which can be converted to cash in one year or less; and non-current or long-term assets, which cannot.

Here is the general order of accounts within current assets:

• Cash and cash equivalents are the most liquid assets and can include Treasury bills and short-term certificates of deposit, as well as hard currency.
• Marketable securities are equity and debt securities for which there is a liquid market.
• Accounts receivable (AR) refer to money that customers owe the company. This may include an allowance for doubtful accounts as some customers may not pay what they owe.
• Inventory refers to any goods available for sale, valued at the lower of the cost or market price.
• Prepaid expenses represent the value that has already been paid for, such as insurance, advertising contracts, or rent.

Long-term assets include the following:

• Long-term investments are securities that will not or cannot be liquidated in the next year.
• Fixed assets include land, machinery, equipment, buildings, and other durable, generally capital-intensive assets.
• Intangible assets include non-physical (but still valuable) assets such as intellectual property and goodwill. These assets are generally only listed on the balance sheet if they are acquired, rather than developed in-house. Their value may thus be wildly understated (by not including a globally recognized logo, for example) or just as wildly overstated.

Liabilities

A liability is any money that a company owes to outside parties, from bills it has to pay to suppliers to interest on bonds issued to creditors to rent, utilities and salaries. Current liabilities are due within one year and are listed in order of their due date. Long-term liabilities, on the other hand, are due at any point after one year.

Current liabilities accounts might include:

• Current portion of long-term debt is the portion of a long-term debt due within the next 12 months. For example, if a company has a 10 years left on a loan to pay for its warehouse, 1 year is a current liability and 9 years is a long-term liability.
• Interest payable is accumulated interest owed, often due as part of a past-due obligation such as late remittance on property taxes.
• Wages payable is salaries, wages, and benefits to employees, often for the most recent pay period.
• Customer prepayments is money received by a customer before the service has been provided or product delivered. The company has an obligation to (a) provide that good or service or (b) return the customer's money.
• Dividends payable is dividends that have been authorized for payment but have not yet been issued.
• Earned and unearned premiums is similar to prepayments in that a company has received money upfront, has not yet executed on their portion of an agreement, and must return unearned cash if they fail to execute.
• Accounts payable is often the most common current liability. Accounts payable is debt obligations on invoices processed as part of the operation of a business that are often due within 30 days of receipt.

Long-term liabilities can include:

• Long-term debt includes any interest and principal on bonds issued
• Pension fund liability refers to the money a company is required to pay into its employees' retirement accounts
• Deferred tax liability is the amount of taxes that accrued but will not be paid for another year. Besides timing, this figure reconciles differences between requirements for financial reporting and the way tax is assessed, such as depreciation calculations.

Some liabilities are considered off the balance sheet, meaning they do not appear on the balance sheet.

Shareholder Equity

Shareholder equity is the money attributable to the owners of a business or its shareholders. It is also known as net assets since it is equivalent to the total assets of a company minus its liabilities or the debt it owes to non-shareholders.

Retained earnings are the net earnings a company either reinvests in the business or uses to pay off debt. The remaining amount is distributed to shareholders in the form of dividends.

Treasury stock is the stock a company has repurchased. It can be sold at a later date to raise cash or reserved to repel a hostile takeover .

Some companies issue preferred stock , which will be listed separately from common stock under this section. Preferred stock is assigned an arbitrary par value (as is common stock, in some cases) that has no bearing on the market value of the shares. The common stock and preferred stock accounts are calculated by multiplying the par value by the number of shares issued.

Additional paid-in capital or capital surplus represents the amount shareholders have invested in excess of the common or preferred stock accounts, which are based on par value rather than market price. Shareholder equity is not directly related to a company's market capitalization . The latter is based on the current price of a stock, while paid-in capital is the sum of the equity that has been purchased at any price.

Par value is often just a very small amount, such as $0.01.

Importance of a Balance Sheet

Regardless of the size of a company or industry in which it operates, there are many benefits of reading, analyzing, and understanding its balance sheet.

First, balance sheets help to determine risk. This financial statement lists everything a company owns and all of its debt. A company will be able to quickly assess whether it has borrowed too much money, whether the assets it owns are not liquid enough, or whether it has enough cash on hand to meet current demands.

Balance sheets are also used to secure capital. A company usually must provide a balance sheet to a lender in order to secure a business loan. A company must also usually provide a balance sheet to private investors when attempting to secure private equity funding. In both cases, the external party wants to assess the financial health of a company, the creditworthiness of the business, and whether the company will be able to repay its short-term debts.

Managers can opt to use financial ratios to measure the liquidity, profitability, solvency, and cadence (turnover) of a company using financial ratios, and some financial ratios need numbers taken from the balance sheet. When analyzed over time or comparatively against competing companies, managers can better understand ways to improve the financial health of a company.

Last, balance sheets can lure and retain talent. Employees usually prefer knowing their jobs are secure and that the company they are working for is in good health. For public companies that must disclose their balance sheet, this requirement gives employees a chance to review how much cash the company has on hand, whether the company is making smart decisions when managing debt, and whether they feel the company's financial health is in line with what they expect from their employer.

Limitations of a Balance Sheet

Although the balance sheet is an invaluable piece of information for investors and analysts, there are some drawbacks. Because it is static, many financial ratios draw on data included in both the balance sheet and the more dynamic income statement and statement of cash flows to paint a fuller picture of what's going on with a company's business. For this reason, a balance alone may not paint the full picture of a company's financial health.

A balance sheet is limited due its narrow scope of timing. The financial statement only captures the financial position of a company on a specific day. Looking at a single balance sheet by itself may make it difficult to extract whether a company is performing well. For example, imagine a company reports $1,000,000 of cash on hand at the end of the month. Without context, a comparative point, knowledge of its previous cash balance, and an understanding of industry operating demands, knowing how much cash on hand a company has yields limited value.

Different accounting systems and ways of dealing with depreciation and inventories will also change the figures posted to a balance sheet. Because of this, managers have some ability to game the numbers to look more favorable. Pay attention to the balance sheet's footnotes in order to determine which systems are being used in their accounting and to look out for red flags .

Last, a balance sheet is subject to several areas of professional judgement that may materially impact the report. For example, accounts receivable must be continually assessed for impairment and adjusted to reflect potential uncollectible accounts. Without knowing which receivables a company is likely to actually receive, a company must make estimates and reflect their best guess as part of the balance sheet.

Example of a Balance Sheet

The image below is an example of a comparative balance sheet of Apple, Inc . This balance sheet compares the financial position of the company as of September 2020 to the financial position of the company from the year prior.

In this example, Apple's total assets of $323.8 billion is segregated towards the top of the report. This asset section is broken into current assets and non-current assets, and each of these categories is broken into more specific accounts. A brief review of Apple's assets shows that their cash on hand decreased, yet their non-current assets increased.

This balance sheet also reports Apple's liabilities and equity, each with its own section in the lower half of the report. The liabilities section is broken out similarly as the assets section, with current liabilities and non-current liabilities reporting balances by account. The total shareholder's equity section reports common stock value, retained earnings, and accumulated other comprehensive income. Apple's total liabilities increased, total equity decreased, and the combination of the two reconcile to the company's total assets.

Why Is a Balance Sheet Important?

The balance sheet is an essential tool used by executives, investors, analysts, and regulators to understand the current financial health of a business. It is generally used alongside the two other types of financial statements: the income statement and the cash flow statement.

Balance sheets allow the user to get an at-a-glance view of the assets and liabilities of the company. The balance sheet can help users answer questions such as whether the company has a positive net worth, whether it has enough cash and short-term assets to cover its obligations, and whether the company is highly indebted relative to its peers.

What Is Included in the Balance Sheet?

The balance sheet includes information about a company’s assets and liabilities. Depending on the company, this might include short-term assets, such as cash and accounts receivable , or long-term assets such as property, plant, and equipment (PP&E). Likewise, its liabilities may include short-term obligations such as accounts payable and wages payable, or long-term liabilities such as bank loans and other debt obligations.

Who Prepares the Balance Sheet?

Depending on the company, different parties may be responsible for preparing the balance sheet. For small privately-held businesses , the balance sheet might be prepared by the owner or by a company bookkeeper. For mid-size private firms, they might be prepared internally and then looked over by an external accountant.

Public companies, on the other hand, are required to obtain external audits by public accountants, and must also ensure that their books are kept to a much higher standard. The balance sheets and other financial statements of these companies must be prepared in accordance with Generally Accepted Accounting Principles (GAAP) and must be filed regularly with the Securities and Exchange Commission (SEC).

What Are the Uses of a Balance Sheet?

A balance sheet explains the financial position of a company at a specific point in time. As opposed to an income statement which reports financial information over a period of time, a balance sheet is used to determine the health of a company on a specific day.

A bank statement is often used by parties outside of a company to gauge the company's health. Banks, lenders, and other institutions may calculate financial ratios off of the balance sheet balances to gauge how much risk a company carries, how liquid its assets are, and how likely the company will remain solvent.

A company can use its balance sheet to craft internal decisions, though the information presented is usually not as helpful as an income statement. A company may look at its balance sheet to measure risk, make sure it has enough cash on hand, and evaluate how it wants to raise more capital (through debt or equity).

What Is the Balance Sheet Formula?

In accounting, the footing is the final balance obtained by adding all the debits and credits. A balance sheet, an important financial tool, calculates a company's assets with its liabilities and equity. Total assets are calculated as the sum of all short-term, long-term, and other assets. Total liabilities are calculated as the sum of all short-term, long-term, and other liabilities. Total equity is calculated as the sum of net income, retained earnings, owner contributions, and shares of stock issued. The formula is: total assets = total liabilities + total equity.

Harvard Business School Online. " How to Prepare a Balance Sheet: 5 Steps for Beginners ."

Cambridge Dictionary. " Par Value ."

U.S. Securities and Exchange Commission. " Standard Taxonomies ."

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Business Plan Balance Sheet: Everything You Need to Know

Preparing a business plan balance sheet is an important part of starting your own business. 3 min read updated on February 01, 2023

Preparing a business plan balance sheet is an important part of starting your own business. The balance sheet serves as one of three crucial parts of the company's financials along with cash flow and the income statement. The basics of the balance sheet include a few straightforward parts:

• Company assets.
• Liabilities.
• Owner's equity.

The balance sheet will also include income and spending that isn't represented in the profit and loss statement. For example, it will show loan repayments and the purchase of new assets. Additionally, the money that is taken in as a new loan will not show up on the P & L either.

Accounts receivable, or the money you are waiting to receive from your customers, will show up as an asset on your balance sheet and as it is not yet reported as income on your P & L statement. A balance sheet is your business's representation of why your profits are not yet considered cash. It creates the broad financial picture of your business while the profit and loss statement will show the company's financial performance over a set length of time.

A balance sheet always has to balance. It will have assets on one side and liabilities and equity on the other. The basic formula that a balance sheet follows is Assets = Liabilities + Equity. In the end, it is the balance sheet that will show a company's net worth. To determine net worth at any given time, all you need to do is subtract the liabilities from the assets.

Balance sheets are used for planning and not accounting which is one of the principles of lean business planning. To get a useful cash flow projection, you will need to summarize the aggregate of the rows on the balance sheet. It is always important to look at a balance sheet as a tool to forecast your cash.

Components of a Balance Sheet

Just as one business will differ from another, so will the assets and liabilities of the business. Even though the titles will vary, the equation and goal remains the same. You will need to have your business assets equal your liabilities and equity .

The assets on your balance sheet will often be in order from the top to the bottom with how easy they can be converted to cash. This is called liquidity . Your most liquid assets will be on top and your least liquid on the bottom. Typically assets will be listed as follows:

• Cash — This is money currently on hands such as in checking and savings accounts. It can also include money market accounts that can be converted to cash quickly.
• Accounts Receivable — This represents money that is owed to you but has not actually been received yet. This is often credit that is extended to customers through invoicing.
• Inventory — This includes all the finished goods and materials that are ready at your place of business but has yet to be sold.
• Current Assets — These are assets that can be considered able to be converted into cash within a year or less. This includes all your cash, accounts receivable, and inventory which will all be grouped together as current assets.
• Long-Term Assets — These are fixed assets that have a long-standing value such as land and equipment. They cannot be converted to cash as quickly.
• Accumulated Depreciation — This is the value that your assets will be reduced over time due to depreciation.
• Long-Term Assets — This is the total of long-term assets plus depreciation.

Liabilities

Liabilities will be ordered for time it would take to pay them off, with current liabilities needing to be paid in a year or less and long-term liabilities longer than a year.

• Accounts Payable — This is the amount of money that your business will owe to vendors or for regular bills.
• Sales Tax Payable — If your sales tax is not paid right away, it will accrue in this account until payment is made.
• Short-Term Debt — This is usually short-term loans that will be repaid in less than a year.
• Total Current Liabilities — The total amount of debt that the business will need to pay back in a year.
• Long-Term Debt — This amount includes the financial responsibilities that will take more than a year to pay back.

If you need help with a business plan balance sheet, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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How to Read & Understand a Balance Sheet

• 02 Apr 2020

When it comes to understanding a business, there are few financial statements more important than the balance sheet. The balance sheet offers critical insight into the health of a business that can be used by:

• Potential investors to decide whether to invest in a company
• Business owners to craft more effective organizational strategy
• Employees to adjust their processes to better reach shared organizational goals

Whether you’re a business owner, employee, or investor , understanding how to read and understand the information in a balance sheet is an essential financial accounting skill to have.

Here’s everything you need to know about understanding a balance sheet, including what it is, the information it contains, why it’s so important, and the underlying mechanics of how it works.

Access your free e-book today.

What Is a Balance Sheet?

A balance sheet is a financial document designed to communicate exactly how much a company or organization is worth—its so-called “book value.” The balance sheet achieves this by listing out and tallying up all of a company’s assets, liabilities, and owners’ equity as of a particular date, also known as the “reporting date."

Typically, a balance sheet will be prepared and distributed on a quarterly or monthly basis, depending on the frequency of reporting as determined by law or company policy.

Check out our video on the balance sheet below, and subscribe to our YouTube channel for more explainer content!

The Purpose of the Balance Sheet

A balance sheet provides a summary of a business at a given point in time. It’s a snapshot of a company’s financial position, as broken down into assets, liabilities, and equity. Balance sheets serve two very different purposes depending on the audience reviewing them.

When a balance sheet is reviewed internally by a business leader, key stakeholder, or employee, it’s designed to give insight into whether a company is succeeding or failing. Based on this information, an internal audience can shift their policies and approach: doubling down on successes, correcting failures, and pivoting toward new opportunities.

When a balance sheet is reviewed externally by someone interested in a company, it’s designed to give insight into what resources are available to a business and how they were financed. Based on this information, potential investors can decide whether it would be wise to invest in a company. Similarly, it’s possible to leverage the information in a balance sheet to calculate important metrics, such as liquidity, profitability, and debt-to-equity ratio.

External auditors, on the other hand, might use a balance sheet to ensure a company is complying with any reporting laws it’s subject to.

It’s important to remember that a balance sheet communicates information as of a specific date. By its very nature, a balance sheet is always based upon past data. While investors and stakeholders may use a balance sheet to predict future performance, past performance is no guarantee of future results.

The Balance Sheet Equation

The information found in a balance sheet will most often be organized according to the following equation: Assets = Liabilities + Owners’ Equity .

While this equation is the most common formula for balance sheets, it isn’t the only way of organizing the information. Here are other equations you may encounter:

Owners’ Equity = Assets - Liabilities

Liabilities = Assets - Owners’ Equity

A balance sheet should always balance . Assets must always equal liabilities plus owners’ equity. Owners’ equity must always equal assets minus liabilities. Liabilities must always equal assets minus owners’ equity.

If a balance sheet doesn’t balance, it’s likely the document was prepared incorrectly. Typically, errors are due to incomplete or missing data, incorrectly entered transactions, errors in currency exchange rates or inventory levels, miscalculations of equity, or miscalculated depreciation or amortization.

Here’s a closer look at what's typically included in each of those categories of value: assets, liabilities, and owners’ equity.

An asset is defined as anything that is owned by a company and holds inherent, quantifiable value. A business could, if necessary, convert an asset into cash through a process known as liquidation. Assets are typically tallied as positives (+) in a balance sheet and broken down into two further categories: current assets and noncurrent assets.

Current assets typically include anything a company expects it will convert into cash within a year, such as:

• Cash and cash equivalents
• Prepaid expenses
• Marketable securities
• Accounts receivable

Noncurrent assets typically include long-term investments that aren’t expected to be converted into cash in the short term, such as:

• Intellectual property
• Equipment used to produce goods or perform services

Because companies invest in assets to fulfill their mission, you must develop an intuitive understanding of what they are. Without this knowledge, it can be challenging to understand the balance sheet and other financial documents that speak to a company’s health.

Related: Financial Statement Analysis: The Basics for Non-Accountants

2. Liabilities

A liability is the opposite of an asset. While an asset is something a company owns, a liability is something it owes . Liabilities are financial and legal obligations to pay an amount of money to a debtor, which is why they’re typically tallied as negatives (-) in a balance sheet.

Just as assets are categorized as current or noncurrent, liabilities are categorized as current liabilities or noncurrent liabilities.

Current liabilities typically refer to any liability due to the debtor within one year, which may include:

• Payroll expenses
• Rent payments
• Utility payments
• Debt financing
• Accounts payable
• Other accrued expenses

Noncurrent liabilities typically refer to any long-term obligations or debts which will not be due within one year, which might include:

• Bonds payable
• Provisions for pensions
• Deferred tax liabilities

Liabilities may also include an obligation to provide goods or services in the future.

3. Owners’ Equity

Owners’ equity , also known as shareholders' equity , typically refers to anything that belongs to the owners of a business after any liabilities are accounted for.

If you were to add up all of the resources a business owns (the assets) and subtract all of the claims from third parties (the liabilities), the residual leftover is the owners’ equity.

Owners’ equity typically includes two key elements. The first is money , which is contributed to the business in the form of an investment in exchange for some degree of ownership (typically represented by shares). The second is earnings that the company generates over time and retains.

A Balance Sheet Example

By looking at the sample balance sheet below, you can extract vital information about the health of the company being reported on.

For example, this balance sheet tells you:

• The reporting period ends November 30, 2018, and compares against a similar reporting period from the year prior
• The company’s assets total $60,173, including $37,232 in current assets and $22,941 in noncurrent assets
• The company’s liabilities total $16,338, including $14,010 in current liabilities and $2,328 in noncurrent liabilities
• The company retained $45,528 in earnings during the reporting period, slightly more than the same period a year prior

It's important to note that how a balance sheet is formatted differs depending on where an organization is based. The example above complies with International Financial Reporting Standards (IFRS), which companies outside the United States follow. In this balance sheet, accounts are listed from least liquid to most liquid (or how quickly they can be converted into cash).

If this balance sheet were from a US company, it would adhere to Generally Accepted Accounting Principles (GAAP), and the order of accounts would be reversed (most liquid to least liquid).

Related: GAAP vs. IFRS: What Are the Key Differences and Which Should You Use?

A Crucial Understanding

The information found in a company’s balance sheet is among some of the most important for a business leader, regulator, or potential investor to understand. Without this knowledge, it can be challenging to know whether a company is struggling or thriving, highlighting why learning how to read and understand a balance sheet is a crucial skill for anyone interested in business.

Do you want to take your career to the next level? Explore our online finance and accounting courses , which can teach you the key financial concepts you need to understand business performance and potential.

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Free Balance Sheet Templates

By Andy Marker | January 7, 2019 (updated April 28, 2023)

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We’ve compiled free, printable, customizable balance sheet templates for project managers, analysts, executives, regulators, and investors. Use these balance sheet templates as financial statements to keep tabs on your assets (what you own) and liabilities (what you owe) to determine your equity. 

Included on this page, you'll find many helpful balance sheet templates, such as a basic balance sheet template , a pro forma balance sheet template , a monthly balance sheet template , an investment property balance sheet template , and a daily balance sheet template , among others. Plus, find tips on how to use balance sheet templates .

Basic Balance Sheet Template

Download a Basic Balance Sheet Template for  Excel | Google Sheets | Smartsheet

Use this simple, easy-to-complete balance sheet template to determine your overall financial outlook. Enter the details of your current fixed and long-term assets and your current and long-term liabilities. The template will then calculate your resulting balance or net worth. Save this printable template as a year-by-year balance sheet, or easily customize it to be a day-by-day or month-by-month balance sheet. Enter projected figures to see your financial position compared to your financial goals. 

For an easy-to-use online balance sheet template, see this basic balance sheet template .

Pro Forma Balance Sheet Template

Download a Sample Pro Forma Balance Sheet Template for  Excel | Adobe PDF | Google Sheets | Smartsheet

Download a Blank Pro Forma Balance Sheet Template for  Excel | Adobe PDF | Google Sheets 

Use this balance sheet for your existing businesses, or enter projected data for your business plan. Annual columns provide year-by-year comparisons of current and fixed assets, as well as current short-term and long-term liabilities. By reviewing this information, you can easily determine your company’s equity. This balance sheet template includes tallies of your net assets — or net worth — and your working capital. Download the sample template for additional guidance, or fill out the blank version to provide a financial statement to investors or executives. 

Download one of these free small business balance sheet templates to help ensure that your small business is on track financially.

Monthly Balance Sheet Template

Download a Monthly Balance Sheet Template for  Excel | Google Sheets 

Ensure that you meet your financial obligations and solvency goals with this easy-to-use monthly balance sheet template. Enter your assets — including cash, value of inventory, and short-term and long-term investments — as well as liabilities and owner’s equity. Completing the form will provide you with an accurate picture of your finances. This template also includes a Common Financial Ratio section, which calculates month-by-month debt ratio, working capital assets-to-equity ratio, and debt-to-equity ratio so that you can accurately evaluate your company’s financial health. 

For additional tips and resources for your organization’s financial planning, see our comprehensive collection of free financial templates for business plans .

Investment Property Balance Sheet Template

Download an Investment Property Balance Sheet Template for  ‌Excel | Google Sheets  

Designed with secondary or investment properties in mind, this comprehensive balance sheet template allows you to factor in all details relating to your investment property’s growth in value. You can easily factor in property costs, expenses, rental and taxable income, selling costs, and capital gains. Also factor in assumptions, such as years you plan to stay invested in the property, and actual or projected value increase. You can also edit the template to include whatever details you need to provide for renting, refinancing, home-equity lines, and possible eventual sale of your investment property.

Daily Balance Sheet Template

Download a Daily Balance Sheet Template for  ‌Excel | Google Sheets 

Keep day-to-day tabs on your assets, liabilities, equity, and balance with this easy-to-use, daily balance sheet template. Enter your total current, fixed, and other assets, total current and long-term liabilities, and total owner’s equity, and the template will automatically calculate your up-to-the-minute balance. You can save this daily balance sheet template as individual files — with customized entries — for each day requiring balance insights for any 24-hour period.

Find more balance sheets and accounting templates in this collection of the top Excel templates for accounting .

Quarterly Balance Sheet Template

Download a Quarterly Balance Sheet Template for  Excel | Google Sheets  

Track your quarterly financial position by entering each month’s assets and liabilities and reviewing the monthly and quarterly perspectives of your owner’s equity. Monthly columns provide you with assets, liabilities, and equity tallies, and also reflect three-month figures for each quarter. This is the perfect template for short-term analysis of fiscal health but can be used for year-over-year monthly and quarterly comparisons.

What Is a Balance Sheet Template?

A balance sheet template is a tool for tallying your assets and liabilities so that you can calculate your equity. Use a balance sheet template to ensure you have sufficient funds to meet and exceed your financial obligations.

Companies, organizations, and individuals use balance sheets to easily calculate their equity, profits, or net worth by subtracting their liabilities from their assets. By doing so, they can get an overall picture of their financial health. A balance sheet also serves as a company or organization’s financial position over specified time, such as daily, monthly, quarterly, or yearly. 

Regardless of the type of balance sheet (simple, business-related, or calendar-specific), they all use the same simple formula:

Whereas a simple balance sheet template allows you to easily fill in the basic assets and liabilities information for a quick glimpse at your financial outlook, a more robust template, such as a pro forma business balance sheet , is useful for entering current assets details, such as accounts receivable and inventory details. 

Regardless of your line of business, all balance sheet templates have standard, pre-set formulas that factor in the following details to keep your financial details balanced and accurate:

• Current Assets: Current assets can be converted to cash within a short period of time and include checking and savings account balances, accounts receivable, inventory, prepaid expenses, short-term investments, and other liquid assets.
• Fixed Assets: Fixed assets , such as property, cars, equipment, stocks and bonds, and intangible assets, take time and effort to convert into liquid cash.
• Total Assets: Your total assets include all of your current and fixed assets.

Liabilities:

• Current Liabilities: Current liabilities , such as accounts payable, short-term loans, income taxes, salaries and wages, and unearned revenue, are debts or obligations that are usually due within a year.
• Long-Term Liabilities: Long-term liabilities , such as loans, debt, and deferred income tax, are financial obligations you pay over time.
• Total Liabilities: Your total liabilities include all of your current and long-term liabilities.
• Owner’s Equity:  Owner’s equity is the value of your company once your liabilities are subtracted from your assets. This is also called net worth.

Additionally, balance sheet templates allow you to enter projected figures so that you can compare your current financial standing with your projected or target finances. For example, you can use a balance sheet to determine what your quarterly figures must be in order to beat your previous year’s profits. Balance sheet templates, such as this Investment Property Balance Sheet , allow you to factor in details such as property costs, expenses, rental and taxable income, selling costs, and capital gains.

Gain Insight into Your Company’s Financial Position with Balance Sheets in Smartsheet

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How To Prepare a Balance Sheet for a Small Business

A business balance sheet can help you secure a startup loan

What Is a Balance Sheet for a Small Business?

Balance sheet vs. profit and loss statement, why does a business need a balance sheet.

• Preparing a Business Startup Balance Sheet
• Balance Sheet: Before & After a Loan
• Startup Balance Sheet vs P&L

You'll be asked for several specific startup financial statements when you begin a new business. A business balance sheet is one of the most important. Creating one may seem pointless because you don't yet have an ongoing business at this point, but it's still important to state your estimates in writing. A balance sheet achieves this, and it can guide you as well as potential lenders when you apply for a startup loan.

Key Takeaways

• A balance sheet is a clear explanation of what a business owns and what it owns at various points in time.
• A balance sheet includes two sections, one for assets and one for liabilities.
• A balance sheet gives potential lenders a picture of the position of a business as of the startup date so it can be a valuable component in being approved for startup funding.

A balance sheet is a business statement that shows what the business owns, what it owes, and the value of the owner's investment in the business. It's calculated at specific points in time, such as when your business is in the startup phase then at the end of each month, quarter, year, and at the end of the business.

What Are the Parts of a Balance Sheet?

A balance sheet is organized into two sections. The left-hand side typically lists all the company's assets. The second section on the right lists the firm's liabilities as well as owner's equity for a small business or retained earnings for a corporation.

The Accounting Equation

The company's total assets must equal the sum of its total liabilities and total owners' equity. The totals must balance. The accounting equation format is the basis for the layout of a balance sheet: Assets = Liabilities + Owner's Equity. This is referred to as the accounting equation.

A profit and loss statement , sometimes called an income statement, shows the sales and profit activity in a business over time. What was the income and what were the expenses over a certain period of time?

A balance sheet is a snapshot of the business financially at a specific point in time, such as the end of a quarter or year.

The financial picture of a business is ever-changing, so both statements are necessary to give a complete picture of its financial status.

The balance sheet is an important document that provides information for potential lenders who will look for specific information about the business to use in consideration for a startup loan . It's also important to you as the business owner because it gives you a snapshot of the business at various points in time.

The balance sheet shows the financial position of the business as of the startup date for a business startup that doesn't yet have a history. This includes what has actually happened at the current stage of the startup and what will happen before the date the business starts.

Steps To Create a Business Balance Sheet

All the calculations in this spreadsheet are done as of the date of startup.

Value of Assets

First list the value of all the assets in the business as of the startup date. This includes cash, equipment, vehicles, supplies, inventory, prepaid items such as insurance, and the value of any buildings or land owned.

Accounts receivable are typically included as an asset, but there should be no amounts owed to the business because the business hasn't started yet.

Liabilities and Amounts Owed

Next list all liabilities: amounts owed by the business to others. These will include business credit cards, any loans to the business at startup, and any amounts owed to vendors at startup. Add up the total liabilities.

Assets vs. Liabilities

The difference between assets and liabilities is shown on the balance sheet as " Owner's Equity " for an unincorporated business or " Retained Earnings " for a corporation. This amount is your investment in the business.

A Balance Sheet Example: Before and After a Loan

One way to present your balance sheet to a lender is to create two versions: one to show the financial position of your new business before the loan you're requesting and one to show your position after the loan.

The first balance sheet shows that the owner has already invested $13,500 into the business in the form of cash, prepaid insurance, furniture and fixtures. 

Simple Startup Balance Sheet: Before the Loan

 simple startup balance sheet: after the loan.

The second balance shows a $50,000 loan, which is being used to buy an  inventory of products to sell and to add more furniture and fixtures. 

A review of the balance sheet shows that the owner has contributed $13,500 in equity to the startup of the business, mostly in cash, furniture and fixtures.

Offsetting the assets are the liabilities and owner's equity. The current short-term liabilities of $1,000 might be small debts owed to vendors for some of the office furniture. The long-term liabilities and loans would more likely be for product inventory and structures.  

Frequently Asked Questions (FAQs)

Which types of inventories does a manufacturing business report on the balance sheet.

A manufacturing business will typically report four types of inventories on its balance sheets: raw materials, work in progress, finished products, and obsolete inventory .

Where do startup costs go on a balance sheet?

These costs would normally appear as either capital or retained earnings in the equity section of your balance sheet, depending upon whether you're operating as a small business or a corporation .

Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!

Small Business Administration. " 5 Things To Know About Your Balance Sheet ."

Harvard Business School. " How To Read & Understand an Income Statement ."

Profitable Venture Magazine Ltd. " 4 Types of Inventory a Manufacturing Business Report on a Balance Sheet ."

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Balance Sheet

Balance Sheet:  A balance sheet is a snapshot of a company’s financial condition. A standard company balance sheet has three parts: assets, liabilities and ownership equity. The balance sheet is the only financial statement that applies to a single point in time of a business’ calendar year.

Balance sheet is a basic component of a financial plan. Learn how to write a financial plan in a business plan .

Balance sheet is a snapshot of the company’s finances at a specific time period. This financial sheet of your company lists out your company’s asset, liabilities and shareholders’ equity giving an idea to investors what your company owns and owes including what shareholders have invested. This statement would allow potential investors or creditors to know the status for further loans.

Pro Tips: Learn how to create a balance sheet using this easy to use balance sheet template .

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Startup Balance Sheet: Template + Guide

March 16, 2022

Adam Hoeksema

Every startup owner needs to be well aware of how their business is doing. A great way to get this perspective is by preparing and understanding crucial financial statements. Among these documents is the startup balance sheet, a document that gives a snapshot of the firm's current financial position. Although it can be challenging to prepare, it is helpful to startups due to its conciseness and accuracy. This article will discuss what a startup balance sheet is and show you how to prepare one. 

What is a Startup Balance Sheet?

A startup balance sheet or projected balance sheet is a financial statement highlighting a business startup's assets, liabilities, and owners' equity. In other words, a balance sheet shows what a business owns, the amount that it owes, and the amount that the business owner may claim. A balance sheet operates on the principle that the sum of liabilities and owners' equity equals its assets. If a business is a true startup with no historical data or assets to the business yet, you can create what is called a projected balance sheet as well.

Most other startup financial statements are prepared for a given fiscal period, such as a year or a quarter. A balance sheet precisely represents the startup's financial position at a point in time. Its contents depend on when it's prepared and reflect every financial decision made up to that point. 

Balance sheets are important financial documents, not only because they give a bird's-eye view of the entire finances. They also give investors a good idea of how the business is doing and the assets into which cash is poured. This makes the balance sheet crucial for securing investments and loans from investment firms, private investors, and banks.

Why You Need a Balance Sheet

Balance sheets are crucial financial statements for every business, including startups. There are several reasons why your startup will need a balance sheet. Some of them are:

• It gives a snapshot of the business

As Inc. Magazine showed, most owners of failed businesses do not realize that the business is failing until it is too late. This occurs because they fail to regularly check the business's accounts and balance sheets. As a result, they do not make important changes quickly enough. Checking your balance sheet regularly shows you how inflow is being managed to facilitate growth.

• It helps your startup secure loans and investments

Before a bank or any other financial institution offers loans to a business, they must ensure that their financial documents and projections are up-to-date and of a required standard. Additionally, investors want to be confident in the business owners' ability to give them a profitable return. A balance sheet is one of the crucial documents that these institutions will examine to ensure that business owners are competent. 

• It reveals trends in the business

Since balance sheets compare the value of specific assets and liabilities over time, they can show recurring or progressing trends in the business. For example, if you're constantly overstocked or understocked, it'd appear in the size of your inventory. If you're taking more loans than you need, it'd also appear. This allows you to make changes and improve productivity. 

• It contributes to decision making

Business owners need to make sound decisions based on the company's financial position. A balance sheet is a crucial document that reveals this position. With a good knowledge of the business's financial position, leaders are better equipped to make positive decisions for the company.

What to Include in a Balance Sheet

The contents of a balance sheet vary widely but belong to one of three classes. This section describes the contents to include in your startup balance sheet:

Assets are items that a business owns and may use to generate profit through its business activities. The sources of these assets include liabilities, or borrowings, and equity, which is the amount that the business owner and investors put into the business. Assets can be divided into two categories – current assets and non-current (fixed) assets.

Current assets are items that the business can convert to cash in a short period, usually a year. Current assets include cash, short-term investments, accounts receivable, and inventories. Typically, they appear at the top of the list.

Fixed assets or non-current assets cannot be converted to cash within a single year. They are referred to as illiquid assets and have a longer lifespan when compared to current assets. Fixed assets include tangible assets such as land, buildings, stocks, machinery, bonds, and long-term investments. 

Fixed assets may also be intangible, such as patents, goodwill, copyrights, trademarks. A brand name is also another intangible asset that may be of great value. The value of fixed assets is subject to appreciation and depreciation. Typically, fixed assets appear at the bottom of the list of assets.

• Liabilities

Liabilities are items that the business owes to entities outside of the business. It is one of the sources of capital to run the business. It is, therefore, an essential component of the balance sheet. Liabilities such as accounts payable may also be described as financial obligations a company has to others. Often, they appear with the tag “payable.” Liabilities may also be classified into two groups: long-term and short-term liabilities.

Short-term liabilities, or current liabilities, are financial obligations that the business must pay in less than a year. These include outstanding bills, unpaid dues, and taxes payable. Unpaid salaries and wages may also be a form of short-term liability. Short-term liabilities appear at the top of the list in the balance sheet.

Long-term liabilities are financial obligations that the business is not due to pay until a period much greater than a year. These include bank debt, bondholder debt, and other loans that are not due until over a year. They generally appear at the bottom of the balance sheet.

Equity is the value of ownership in a business. It also represents the amount that business owners have invested into their business. Equity comprises both paid-in funds and retained earnings. There are two kinds of equity: shareholders' equity and owner's equity.

Owner's equity refers to the value of the investment that a sole proprietor puts into the business. If the company has some investors, the investors' stake in the company is known as shareholders' equity. Equity can be calculated as the total value of assets minus the company's liabilities. Its value gives the net worth of the business. According to Investopedia , it refers to the amount paid to all investors if the business were to be liquidated at a given point in time.

The balance sheet equation gives a critical relationship between the three main components of a balance sheet. It reads thus: Assets = Liabilities + Equity

Types of Balance Sheets

There are several types of balance sheet formats available. Although each format highlights different aspects of the balance sheet, the basic principle of assets, liabilities, and owner equity is applied. Here are a few types of balance sheets you can consider:

• Classified Balance Sheet

Like a typical balance sheet, a classified balance sheet contains all the assets and liabilities of the business. But the critical difference here is that the information on assets, liabilities, and equity are placed into categories. The classified balance sheet is one of the most used. It makes it easier to compare balance sheets over different periods, tracking the growth of the business. 

• Unclassified Balance Sheet

This type of balance sheet is more straightforward than the classified. It simply lists all the items rather than categorizing them. This format is helpful for businesses with only a few items on their list. Typically, you'd list the assets and liabilities from top to bottom in decreasing order of liquidity. 

Liquidity measures how easily the business can turn assets into cash. This means that cash assets and liabilities should appear at the top of the list, while buildings and other fixed assets should appear at the bottom. Unclassified balance sheets are more common in small businesses.

• Common Size Balance Sheet

A common size balance sheet contains all the information on assets, liabilities, and equity-like a classified balance sheet. However, it also includes a column that lists the same information but as a percentage of the total. This means that each asset is listed as a percentage of the total value of assets. Also, each liability is listed as a percentage of the total liabilities and equity.

A common-size balance sheet helps compare relative changes in the company's pool of assets, liabilities, and equity. For example, suppose you'd like to observe how cash varied with time or how inventory values have increased over the years. In that case, you can use a common-size balance sheet.

• Comparative Balance Sheet

The purpose of a comparative balance sheet is to compare the business’s financial position at different points. A comparative balance sheet lists the assets, liabilities, and equity of a business at different times, arranging them side by side. This arrangement makes it easy to observe changes over time.

• Vertical Balance Sheet

This is another simple and commonly used format. A vertical balance sheet lists all the assets, liabilities, and equity in a single column. In a vertical balance sheet, you list assets first, followed by liabilities, and finally, equity. Like an unclassified balance sheet, it's customary to arrange items in decreasing order of liquidity, with cash and other liquid items on the top.

Find the Industry you need a Projected Balance Sheet For:

How to Create a Balance Sheet For Your Startup

According to the balance sheet equation, a business's assets must equal the sum of its liabilities and equity, which are the sources of its possessions. Arranging the information for a balance sheet might seem difficult, especially for a startup. This guide will help you to overcome these difficulties to create a balance sheet:

• Seek the guidance of an accountant

Preparing your first balance sheet, known as an opening day balance sheet, can seem quite scary. If you have not prepared a balance sheet before, you may need the advice of an expert to get started. This helps you avoid mistakes such as unreported assets or undocumented liabilities, which may present an inaccurate picture of the business. 

Additionally, an expert accountant is in a great position to give you financial advice which can help grow the company. Nowadays, most startups even outsource their financials to accountants. You may not be able to afford this as a new startup. Still, with a few hundred dollars, you can gain enough from their expertise to boost the financial security of your business.

• Choose a date to prepare the balance sheet

Most businesses prefer to prepare a balance sheet at the end of a fiscal year or, in other cases, at the end of each quarter. For you, this date may be the end of a financial period, at the beginning of the month, or any other date relevant to your business. Most businesses may still be preparing the balance sheet a few weeks after the date has passed.

Choosing the date to prepare the balance sheet allows you to collect documents, receipts, and files relevant to that point in time. This date should appear at the top of the balance sheet, typically part of the title.

• Gather the necessary data

After choosing the date for preparing the balance sheet, you'll need to collect all the necessary data. Collect important receipts, sales invoices, and request relevant bank statements. Determine how many loans you've taken as a business and how much is due to you. Don't forget to estimate the value of intangible assets, such as patents and trademarks. Having the necessary data handy makes it easier to create a balance sheet.

• Follow a standard format

A balance sheet follows a standard format in which assets, liabilities, and equity occupy designated columns. Ensure that your balance sheet follows a standard format so that it can be easily interpreted by investors and other firms interested in your business. If you're not sure how to present your balance sheet, Projection Hub has several pre-saved templates that can save you work hours. Projection Hub has several custom templates for almost any kind of business.

Here is a sample balance sheet from a fictional startup as a guide:

• Prepare the assets section

Under the Assets section, create a subheading for current assets first. Under this subheading, list all your current assets such as cash, inventory, accounts payable, et cetera. Be sure to list the items from most liquid to least liquid. Add up the subtotal of current assets, and include it in your balance sheet as “Total Current Assets.”

Then, create a section for fixed assets. Here, you can include items like plants, equipment, and long-term investments. Don't forget to add the intangible assets as well. Find the subtotal of the fixed assets. Finally, include the total of all assets.

• Add the liabilities section

Under the Liabilities section, create a subheading for current liabilities. Under this subheading, list all repayments due within a year, such as short-term debts, salaries payable, and accounts payable within a year. Add up the subtotal and list it in your balance sheet.

Also, create a subheading for long-term liabilities. In this section, list all repayments due in more than a year, such as bank loans and mortgages. Include the subtotal in your balance sheet. Finally, add up the total value of the liabilities, and include this in the balance sheet.

• Include an equity section

Under this section, include the amount invested in the business by shareholders and the business owner. Be sure to add any retained earnings which went into the business. Add these up as the total equity.

• Ensure the accounting equation is balanced

Finally, add up the total assets and the total liabilities and equity. Compare the two values – they should tally. If they do, your balance sheet is complete. If they do not tally, you may need to visit your data to check for omitted or miscategorized figures. Ensure that these are taken care of, and work on the balance sheet again.

And if you’d like to use a tool to develop a 5 year projected balance sheet , you can use our financial projection templates here at ProjectionHub which will automatically generate your balance sheet with your information. We also have a completely free standalone Balance Sheet template you can download here!

A balance sheet is an essential financial statement that captures the strength of a business's financial position. Although preparing a balance sheet might seem difficult for a new startup, preparing one is well worth it. With a well-prepared balance sheet, you become informed enough to make excellent decisions that would move your company forward.

Not ready to make a full blown projected balance sheet yet? Check out our free balance sheet template:

About the Author

Adam is the Co-founder of ProjectionHub which helps entrepreneurs create financial projections for potential investors, lenders and internal business planning. Since 2012, over 40,000 entrepreneurs from around the world have used ProjectionHub to help create financial projections.

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Balance Sheet Example Download

Download our free balance sheet example PDF and Excel spreadsheet.

The balance sheet is one of the key financial statements that you should review regularly—at least once a month.

Balance sheet definition

Your balance sheet shows the current financial state of your company and summarizes what you own (your assets), what you owe (your liabilities), and the money you’ve invested into your business, plus profits (your equity).

Unlike the other two primary financial statements (your profit and loss and cash flow statement) which span a period of time such as a month, quarter, or year, the balance sheet tells you how your business is doing at a specific point in time.

Having an accurate balance sheet is fundamental to every business. It is the primary document an investor or lender will want to see to understand your business’s health and value. When you review it regularly, it also provides some key information that will help you make better strategic spending and growth decisions.

Balance sheet formula

The balance sheet always has to balance—as the name suggests—with assets (like cash and inventory) on one side, and liabilities (like accounts payable) and equity on the other.

The formula for every balance sheet is: 

Assets = Liabilities + Equity

Balance sheet analysis: How to read and understand it

Regularly reviewing your balance sheet—also called  balance sheet analysis —will help you spot potential cash issues, and understand the state of your business’s investing and financing activities, whether you’re seeking funding from lenders or investors, or you’re trying to make smart growth decisions. 

There are also a number of useful ratios you can pull from balance sheet data that help you gauge your cash on hand against your financial obligations, and help you compare your business’s health with industry benchmarks.

To learn more about what a balance sheet is and what it can tell you about the current state of your business, check out this article:  What Is a Balance Sheet, and How Do You Read It?

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With LivePlan, you can easily create complete financial statements without any prior business knowledge. LivePlan walks you step by step through the process—no formulas or messy spreadsheets, and no accounting knowledge required. Plus, you’ll get our world-class phone and email support to help you along the way.

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Simple Balance Sheet Template (In Excel)

A balance sheet is one of the most important financial statements a business owner can use to track their company’s financial health. The balance sheet shows a company’s assets, liabilities, and shareholder’s equity at a specific point in time. It is an extremely helpful document that shows how much a business owes, how much it owns, and how much money shareholders have invested in the company.

The balance sheet adheres to the following accounting equation: Assets = Liabilities + Shareholder Equity. This equation shows how the total value of a company’s assets must always be equal to the sum of its liabilities and shareholder equity. Therefore, these three components must always balance out in your balance sheet. Otherwise, you have an accounting/data error. 

The balance sheet is an essential part of a company’s overall business plan, and it should be reviewed regularly to ensure the business is on track financially. It can be used to compare the financial health of different companies engaged in the same industry, and it can be used when applying for loans or another financing. Therefore, a balance sheet is another important tool for business owners to consider when analyzing their company’s financial position.

What is a Pro Forma Balance Sheet?

A pro forma balance sheet is a document that provides a forecast of an organization’s financial position in the future. This document includes estimated numbers for a business’s assets, liabilities, and equity that are forecast to be held at a particular point in time. It can be used to predict the financial standing of an organization over the course of a few months or a few years.

The purpose of pro forma balance sheets is to provide business owners, investors, and other stakeholders with insight into how their company might look financially in the near future. This allows them to plan for any potential financial issues that may arise and make informed decisions about how to best manage their finances.

Pro forma balance sheets are prepared using historical data from past years, economic projection models, inflation rates, and other factors which may influence the organization’s future financial position. They also take into account expected changes in capital structure, such as new debt or equity investments, as well as planned acquisitions or divestitures. Once the projected numbers are calculated, they are added together and then expressed as percentages of total assets or liabilities.

Pro forma balance sheets have several advantages over standard balance sheets, such as providing an accurate forecast which helps business owners make better decisions about their company’s financial health. Additionally, this information can be compared with industry standards so organizations can gauge their performance against competitors in order to strategize effectively for long-term success.

Why You Need a Balance Sheet For Your Business

There are several reasons why a balance sheet is an essential document for your business:

• Tracks the company’s overall financial health: The balance sheet reflects the financial position of a company at any given moment. It provides an accurate picture of the company’s current and long-term assets, liabilities, and shareholder equity, which can be used to assess whether or not the business is financially sound.
• Helps identify current and future weaknesses: By comparing the balance sheet with past years, you can identify any weaknesses in the current year and start to plan for how you can strengthen your finances in the future.
• Grants access to needed capital: The balance sheet is often used by banks and investors when deciding whether or not to extend a loan or make an investment in the company. Therefore, having an up-to-date balance sheet is essential in order to secure the financial resources that a business needs.
• Evaluates your company’s performance against competitors: A business’ balance sheet can be compared to those of other companies in the same industry. This information is invaluable for making informed decisions about how to position your company in order to stay competitive.
• Completes your business plan: A balance sheet is an essential component of a comprehensive business plan. It provides an accurate snapshot of your company’s financial position and helps potential investors and shareholders better understand the risks associated with investing in your business.

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Components of a Simple Small Business Balance Sheet

The balance sheet formula (Assets = Liabilities + Shareholder Equity) is the same regardless of the size or type of business. It includes three main categories: assets, liabilities, and shareholder’s equity.

These include anything that a company owns which has a monetary value. This can include cash, accounts receivable (money owed to the company by customers), inventory, and any other assets such as property or investments owned by the business.

Liabilities

This includes all money that is owed to outside parties, such as creditors, suppliers, and employees. These can include accounts payable (money owed to vendors), loans, mortgages, and any other debt obligations.

Shareholders’ Equity

This represents the company’s net worth after taking into account all of the assets and liabilities. It is essentially the amount that would be left for shareholders if the business was liquidated.

Download our sample balance sheet template to help you create your own.

Download our Balance Sheet Template

How To Create a Simple Balance Sheet For Small Business

Now that you know what you need to include in your balance sheet, you’re ready to create one for your business. Creating an income statement for your small business is quite simple. All you need is a simple spreadsheet, like Microsoft Excel, to get started. Below are the steps you should take to create your balance sheet:

• Choose Your Period: The period of the balance sheet should reflect when you want to capture the business’s financial position. This could be a day, week, month, or year.
• Gather Your Data: You will need to gather all of the necessary information for each category in order to accurately create your balance sheet. This includes any assets, liabilities, and shareholders’ equity for the chosen period.
• Organize Your Data: Once you have all of your information, organize it into the appropriate categories on your spreadsheet. Make separate tabs for assets, liabilities, and shareholder’s equity. Create separate rows or sections for each subcategory within these three. 
• Create Your Balance Sheet: Now you’re ready to create your balance sheet. Begin by entering the total amount of assets, liabilities, and shareholder’s equity on your spreadsheet. Then add up the totals for each subcategory and enter the totals at the bottom of the page. Do this for each of the three tabs. 
• Save & Review: Review the document to make sure all of your information is correct. Remember that assets must equal liabilities plus shareholders’ equity. That means your total assets should be equal to the value of your liabilities and shareholders’ equity combined. If this is not the case, there is most likely a discrepancy in your data or an accounting error. Once balanced, finalize your balance sheet by saving it in a secure location.
• Update Your Balance Sheet: It’s important to regularly update your balance sheet in order to accurately reflect the financial position of your business. This should be done at least once a quarter or whenever there is a major change in the company’s finances.

Other Financial Statements

There are several other financial statements that you may need in addition to a balance sheet. These include a cash flow statement and an income statement.

The cash flow statement is a financial report that details the amount of cash that a company has available to it at any given time. It shows where the money is coming from (inflows) and going to (outflows) over a specific period of time. The cash flow statement can help determine the amount of money that is available for operations, investments, and other activities. It does not track any non-cash transactions. Therefore, while a balance sheet measures the assets, liabilities, and equity of a company, a cash flow statement specifically measures the flow of cash. 

The income statement is a financial report that summarizes the company’s revenues, expenses, and profits over a specific period of time. It shows the overall profitability of the business by subtracting its total expenses from its total revenue. The income statement can help determine how well a company is performing financially over a specific period of time. The main difference between an income statement and a balance sheet is that the former tracks change over a period of time while the latter provides a snapshot of the company’s financial position at one point in time.

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Pro Forma Financial Statements (with Templates and Examples)

Bryce Warnes

Reviewed by

Janet Berry-Johnson, CPA

April 21, 2022

This article is Tax Professional approved

Pro forma definition

According to Merriam-Webster , “pro forma” means:

• Made or carried out in a perfunctory manner or as a formality
• Based on financial assumptions or projections

I am the text that will be copied.

Pro forma is actually a Latin term meaning “for form” (or today we might say “for the sake of form, as a matter of form”).

When it comes to accounting, pro forma statements are financial reports for your business based on hypothetical scenarios. They’re a way for you to test out situations you think may happen in the future to help you make business decisions.

There are three major pro forma statements:

• Pro forma income statements
• Pro forma balance sheets
• Pro forma cash flow statements

Pro forma statements look like regular statements, except they’re based on what ifs, not real financial results. As in, “What if my business got a $50,000 loan next year?” Your pro forma statements for that scenario would show what your income, account balances, and cash flow would look like with a $50,000 loan.

Since pro forma statements deal with potential outcomes, they’re not considered GAAP compliant . This is because GAAP compliant reports must be based on historical information.

Pro forma statements don’t need to meet the strictest accounting standards , but must be clearly marked as “pro forma” and can’t be used for things like filing taxes. Using pro forma statements that aren’t marked as such to misrepresent your business to investors, the IRS, or financial institutions can be penalized by the Securities and Exchange Commission).

However, pro forma statements are still extremely useful. They can help you make a business plan, create a financial forecast, and even get funding from potential investors or lenders.

Different but related: you can send clients pro forma invoices to let them know how much their order would be if they placed it today.

Why create pro forma statements?

Creating pro forma statements for future scenarios can help you:

• Get financed, by showing lenders or investors how you would use their money to sustainably grow your business.
• Plan for the future, by considering best, worst, and most likely case scenarios in detail.
• Anticipate changes that may affect your business as it grows, such as entering a new tax bracket.

For these purposes, pro forma statements are typically created as a part of a financial forecast in financial accounting. Big corporations who have in-house accountants use pro forma statements for financial modeling and forecasting different scenarios.

Pro forma statements vs. budgets

It may be tempting to think of a pro forma statement as the same as a business budget . After all, you create both in anticipation of the future. And both help you plan how you’ll use your money. But budgets and pro forma statements are two distinct financial tools.

Think of it this way: A pro forma statement is a prediction, and a budget is a plan. Your budget may be based on the financial information of your pro forma statements—after all, it makes sense to make plans based on your predictions.

For example: Your income this year is $37,000. According to your pro forma annual income statement, your financial projections show it will be $44,000 next year. So, when you create next year’s budget, you can include that extra $7,000—maybe spending $4,000 over the course of the year to pay down the principal on a loan , while adding $3,000 to savings.

Types of pro forma statement

There are four main types of pro forma statements. While they all fall into the same categories—income statement, balance sheet, and cash flow statement—they differ based on the purpose of the financial forecast.

1. Full-year pro forma projection

This type of pro forma projection takes into account all of your financials for the fiscal year up until the present time, then adds projected outcomes for the remainder of the year. That can help you show investors or partners what business finances could look like by the end of the fiscal year.

2. Financing or investment pro forma projection

You may be courting investors or trying to convince your business partners of the value of a capital investment or additional financing. In that case, you can use a financing pro forma projection to make your case. It takes into account an injection of cash from an outside source—plus any interest payments you may need to make—and shows how it will affect your business’s financial position.

3. Historical with acquisition pro forma projection

This type of pro forma projection looks at the past financial statements of your business, plus the past financial statements of a business you want to buy . Then it merges them to show what your financials would have looked like if you made a business combination (or merger) earlier. You can use this scenario as a model of what may happen in the future if you buy the other business and restructure now.

4. Risk analysis pro forma projection

Looking at both best case and worst case scenarios helps you make financial decisions based on challenges you may face in the future. For instance, what happens if your main vendor raises their prices like they did last year? Or how will that proposed transaction of buying new equipment impact you long term? Risk analysis lets you take the future for a test ride, and try out different outcomes.

Pro forma templates

To create a pro forma statement, you can use the same template you’d use for a normal financial statement. You may want to use Bench’s free templates:

• Income statement
• Balance sheet
• Cash flow statement

How to create pro forma statements

The sample pro forma statements below may look different from the statements you create, depending on what your template looks like. But generally, these are the steps you need to take to create them—and the info your pro forma statements should include.

Creating a pro forma income statement

There are five steps to creating a pro forma income statement:

• Set a goal for sales in the period you’re looking at. Let’s say you want to increase your income by $18,000 over the course of one year.
• Set a production schedule that will let you reach your goal, and map it out over the time period you’re covering. In this case, you’ll want to earn an additional $1,500 income every month, for 12 months.
• Plan how you’ll match your production schedule. You could do this by growing your number of sales a fixed amount every month, or gradually increasing the amount of sales you make per month. It’s up to you—trust your experience as a business owner.
• It’s time for the “loss” part of “ Profit and Loss .” Calculate the cost of goods sold for each month in your projection. Then, deduct it from your sales. Deduct any other operating expenses you have, as well.
• Prepare your pro forma income statement using data you’ve compiled in the prior four steps.

One note: your pro forma statements will be much more accurate if your bookkeeping is up to date. That way, when you project future periods, you’re basing it off the reality of your business today.

How Bench can help

To predict the future, you first need to understand the past. With Bench, you get a crystal clear image of your financial history so you can focus on planning your future. We’re America’s largest bookkeeping service helping thousands of business owners better understand the financial health of their operations so they can keep focused on growth and planning. When it comes time to create a pro forma statement, you have reliable numbers and reports to get started. We may not be a crystal ball, but we’re the next best thing. Learn more .

Example pro forma income statement:

Rosalia’s Reliable Recordings

Creating a pro forma cash flow statement

You create a pro forma cash flow statement much the same way you’d create a normal cash flow statement. That means taking info from the income statement, then using the cash flow statement format to plot out where your money is going, and what you’ll have on hand at any one time. This pro forma statement can be part of a larger cash flow forecast used for decision making.

Your projected cash flow can give you a few different insights. If it’s negative, it means you won’t have enough cash on-hand to run your business, according to your current trajectory. You’ll have to make plans to borrow money and pay it off.

On the other hand, if net cash flow is positive, you can plan on having enough extra cash on hand to pay off loans, or save for a big investment.

Example pro forma cash flow statement

Mickie’s Murakami Museum

Creating a pro forma balance sheet

By drawing on info from the income statement and the cash flow statement, you can create pro forma balance sheets. However, you’ll also need previous balance sheets to make this useful—so you can see how your business got from “Balance A” to “Balance B.”

The balance sheet will project changes in your business accounts over time. So you can plan where to move money, when.

Example pro forma balance sheet

Daily Dumpling Deliveries

Once you’ve created your pro forma income statements, and cast your eyes forward to the future of your business, you can start planning how you’ll spend your money. It’s time to create a small business budget .

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SG&A is the overhead costs of your business. Here's how to identify them, and reduce them where you can.

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Balance Sheet Template

The balance sheet is a very important financial statement that summarizes a company's assets (what it owns ) and liabilities (what it owes ). A balance sheet is used to gain insight into the financial strength of a company. You can also see how the company resources are distributed and compare the information with similar companies.

No balance sheet statement is complete (in my opinion) without an income statement to go along with it. As a small business owner, I find the income statement to be more useful in the general operation of the business, but the balance sheet is still a critical accounting tool that provides a key piece of information.

The balance sheet informs company owners about the net worth of the company at a specific point in time . This is done by subtracting the total liabilities from the total assets to calculate the owner's equity , also known as shareholder's equity (for corporations) or simply the net worth .

Balance Sheet

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"No installation, no macros - just a simple spreadsheet" - by Jon Wittwer

Description

Download our free Balance Sheet template , designed for the small-business owner. It includes common financial ratios and works well for a two-year comparison. See below for more information on the different asset and liability categories.

Balance Sheet Essentials

The Accounting Equation : Assets = Liabilities + Owner's Equity

Current Assets

The term current in a balance sheet generally means "short-term" which is usually one year or less. Common current assets includes cash (cash, coin, balances in checking and savings accounts), accounts receivable (amounts owed to your business by your customers usually within 10-60 days), inventory (goods for sale), and prepaid expenses (e.g. insurance and rent).

Long-Term Assets

These assets include long-term investments , cost of property and equipment (e.g. land, buildings, equipment, tools, furniture, computers, vehicles, etc.) offset by accumulated depreciation, intangible assets (e.g. patents, contracts, trademarks, copyrights, and goodwill), and other assets (like deferred income tax arising from the loss of value of property that cannot be reported as a tax deduction until the property is sold).

Current Liabilities

These include the obligations to be paid within one year, including accounts payable , short-term loans, income taxes payable, wages, unearned revenue (e.g. service contracts), and the current portion of long-term debt (e.g. mortgage payments payable within 12 months).

Long-Term Liabilities

These include long-term debt (e.g. notes, mortgages), capital lease obligations (e.g. leases structured as loans), and deferred income tax (e.g. the tax due on the increase in value of an investment security that isn't paid until the security is sold).

Owner's Equity (or Stockholders' Equity for corporations)

This is basically the amount left over when you subtract Total Liabilities from Total Assets. In includes the owner's investment (s) and retained earnings (the portion of the profits reinvested in the business). For corporations, there are usually more categories (see the references below).

Balance Sheet References

• Financial Accounting: Reporting and Analysis by M.A. Diamond, E. K. Slice, and J.D. Slice., 2000.
• Balance Sheet , Fixed Assets , Intangible Assets , Deferred Tax , Shareholders' Equity at wikipedia.org

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