sample business plan balance sheet

How to write a balance sheet for a business plan

Table of Contents

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 May 2, 2024

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.

The balance sheet includes spending and income that isn’t in the income statement (also called a profit and loss statement). For example, the money you spend to repay a loan or buy new assets doesn’t show up in the income statement. And the money you take in as a new loan or a new investment doesn’t show up in the income statement either. The money you are waiting to receive from customers’ outstanding invoices shows up in the balance sheet, not the income statement.

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 (income 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. The balance sheet also helps illustrate how cash and profits are very different things .

• 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.

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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How to Prepare a Balance Sheet: 5 Steps for Beginners

• 10 Sep 2019

A company’s balance sheet is one of the most important financial statements it produces—typically on a quarterly or even monthly basis (depending on the frequency of reporting).

Depicting your total assets, liabilities, and net worth, this document offers a quick look into your financial health and can help inform lenders, investors, or stakeholders about your business. Based on its results, it can also provide you key insights to make important financial decisions.

When paired with cash flow statements and income statements , balance sheets can help provide a complete picture of your organization’s finances for a specific period. By determining the financial status of your organization, essential partners have an informative blueprint of your company’s potential and profitability.

Have you found yourself in the position of needing to prepare a balance sheet? Here's what you need to know to understand how balance sheets work and what makes them a business fundamental , as well as steps you can take to create a basic balance sheet for your organization.

Access your free e-book today.

What Is a Balance Sheet?

A balance sheet is a financial statement that communicates the “book value” of an organization, as calculated by subtracting all of the company’s liabilities and shareholder equity from its total assets.

A balance sheet offers internal and external analysts a snapshot of how a company is performing in the current period, how it performed during the previous period, and how it expects to perform in the immediate future. This makes balance sheets an essential tool for individual and institutional investors, as well as key stakeholders within an organization and any outside regulators who need to see the status of an organization during specific periods of time.

The Balance Sheet Format

Most balance sheet formats are arranged according to this equation : Assets = Liabilities + Shareholders’ Equity

The equation above includes three broad buckets, or categories, of value which must be accounted for:

An asset is anything a company owns which holds some amount of quantifiable value, meaning that it could be liquidated and turned to cash. They're the goods and resources owned by the company.

Assets can be further broken down into current assets and non-current assets:

• Current assets —or short-term assets—are typically what a company expects to convert into cash within a year’s time, such as cash and cash equivalents, prepaid expenses, inventory, marketable securities, and accounts receivable.
• Non-current assets —also called fixed or long-term assets—are investments that a company does not expect to convert into cash in the short term, such as land, equipment, patents, trademarks, and intellectual property.

Related: 6 Ways Understanding Finance Can Help You Excel Professionally

2. Liabilities

A liability is anything a company or organization owes to a debtor. This may refer to payroll expenses, rent and utility payments, debt payments, money owed to suppliers, taxes, or bonds payable.

As with assets, liabilities can be classified as either current liabilities or non-current liabilities:

• Current or short-term liabilities are typically those due within one year, which may include accounts payable and other accrued expenses.
• Non-current or long term liabilities are typically those that a company doesn’t expect to repay within one year. They're usually long-term obligations, such as leases, bonds payable, or loans.

3. Shareholders’ Equity

Shareholders’ equity refers generally to the net worth of a company, and reflects the amount of money that would be left over if all assets were sold and liabilities paid. Shareholders’ equity belongs to the shareholders, whether they're private or public owners.

Just as assets must equal liabilities plus shareholders’ equity, shareholders’ equity can be depicted by this equation: Shareholders’ Equity = Assets - Liabilities

Does a Balance Sheet Always Balance?

A balance sheet should always balance. The name itself comes from the fact that a company’s assets will equal its liabilities plus any shareholders’ equity that has been issued. If you find that your balance sheet is not truly balancing, it may be caused by one of these culprits:

• Incomplete or misplaced data
• Incorrectly entered transactions
• Errors in currency exchange rates
• Errors in inventory
• Incorrect equity calculations
• Miscalculated loan amortization or depreciation

How to Prepare a Basic Balance Sheet

Here are five steps you can follow to create a basic balance sheet for your organization. Even if some or all of the process is automated through the use of an accounting system or software, understanding how a balance sheet is prepared will enable you to spot potential errors so that they can be resolved before they cause lasting damage.

1. Determine the Reporting Date and Period

A balance sheet is meant to depict the total assets, liabilities, and shareholders’ equity of a company on a specific date, typically referred to as the reporting date. Often, the reporting date will be the final day of the accounting period .

How Often Is a Balance Sheet Prepared?

Companies, especially publicly traded ones, prepare their balance sheet reports on a quarterly basis. When this is the case, the reporting date usually falls on the final day of the quarter. For companies that operate on a calendar year, those dates are:

• Q1: March 31
• Q2: June 30
• Q3: September 30
• Q4: December 31

Companies that report on an annual basis will often use December 31st as their reporting date, though they can choose any date.

It's not uncommon for a balance sheet to take a few weeks to prepare after the reporting period has ended.

Related: 10 Important Business Skills Every Professional Needs

2. Identify Your Assets

After you’ve identified your reporting date and period, you’ll need to tally your assets as of that date.

Typically, a balance sheet will list assets in two ways: As individual line items and then as total assets. Splitting assets into different line items will make it easier for analysts to understand exactly what your assets are and where they came from; tallying them together will be required for final analysis.

Assets will often be split into the following line items:

• Current Assets:
• Cash and cash equivalents
• Short-term marketable securities
• Accounts receivable
• Other current assets
• Non-current Assets:
• Long-term marketable securities
• Intangible assets
• Other non-current assets

Current and non-current assets should both be subtotaled, and then totaled together.

3. Identify Your Liabilities

Similarly, you will need to identify your liabilities. Again, these should be organized into both line items and totals, as below:

• Current Liabilities:
• Accounts payable
• Accrued expenses
• Deferred revenue
• Current portion of long-term debt
• Other current liabilities
• Non-Current Liabilities:
• Deferred revenue (non-current)
• Long-term lease obligations
• Long-term debt
• Other non-current liabilities

As with assets, these should be both subtotaled and then totaled together.

4. Calculate Shareholders’ Equity

If a company or organization is privately held by a single owner, then shareholders’ equity will be relatively straightforward. If it’s publicly held, this calculation may become more complicated depending on the various types of stock issued.

Common line items found in this section of the balance sheet include:

• Common stock
• Preferred stock
• Treasury stock
• Retained earnings

5. Add Total Liabilities to Total Shareholders’ Equity and Compare to Assets

To ensure the balance sheet is balanced, it will be necessary to compare total assets against total liabilities plus equity. To do this, you’ll need to add liabilities and shareholders’ equity together.

Example of a Finished Balance Sheet

It's important to note that this balance sheet example is formatted according to International Financial Reporting Standards (IFRS), which companies outside the United States follow. If this balance sheet were from a US company, it would adhere to Generally Accepted Accounting Principles (GAAP).

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

If you’ve found that your balance sheet doesn't balance, there's likely a problem with some of the accounting data you've relied on. Double check that all of your entries are correct and accurate. You may have omitted or duplicated assets, liabilities, or equity, or miscalculated your totals.

The Purpose of a Balance Sheet

Balance sheets are one of the most critical financial statements , offering a quick snapshot of the financial health of a company. Learning how to generate them and troubleshoot issues when they don’t balance is an invaluable financial accounting skill that can help you become an indispensable member of your organization.

Do you want to learn more about what's behind the numbers on financial statements? Explore our finance and accounting courses to find out how you can develop an intuitive knowledge of financial principles and statements to unlock critical insights into performance and potential.

This post was updated on May 9, 2024. It was originally published on September 10, 2019.

About the Author

Understanding a Balance Sheet (With Examples and Video)

Frances McInnis

Reviewed by

May 3, 2024

This article is Tax Professional approved

Balance sheets can help you see the big picture: the net worth of your small business, how much money you have, and where it’s kept. They’re also essential for getting investors, securing a loan , or selling your business.

So you definitely need to know your way around one. That’s where this guide comes in. We’ll walk you through balance sheets, one step at a time.

I am the text that will be copied.

What is a balance sheet?

The balance sheet is one of the three main financial statements , along with the income statement and cash flow statement .

While income statements and cash flow statements show your business’s activity over a period of time, a balance sheet gives a snapshot of your financials at a particular moment. It incorporates every journal entry since your company launched. Your balance sheet shows what your business owns (assets), what it owes (liabilities) , and what money is left over for the owners ( owner’s equity ).

Because it summarizes a business’s finances, the balance sheet is also sometimes called the statement of financial position. Companies usually prepare one at the end of a reporting period, such as a month, quarter, or year.

The purpose of a balance sheet

Because the balance sheet reflects every transaction since your company started, it reveals your business’s overall financial health. Investors, business owners, and accountants can use this information to give a book value to the business, but it can be used for so much more.

At a glance, you’ll know exactly how much money you’ve put in, or how much debt you’ve accumulated. Or you might compare current assets to current liabilities to make sure you’re able to meet upcoming payments.

The information in your company’s balance sheet can help you calculate key financial ratios, such as the debt-to-equity ratio, a metric which shows the ability of a business to pay for its debts with equity (should the need arise). Even more immediately applicable is the current ratio : current assets / current liabilities. This will tell you whether you have the ability to pay all your debts in the next 12 months.

You can also compare your latest balance sheet to previous ones to examine how your finances have changed over time. You’ll be able to see just how far you’ve come since day one.

A simple balance sheet template

You can download a simple balance sheet template here . You record the account name on the left side of the balance sheet and the cash value on the right.

What goes on a balance sheet

At a high level, a balance sheet works the same way across all business types. They are organized into three categories: assets, liabilities, and owner’s equity.

Let’s start with assets—the things your business owns that have a dollar value.

List your assets in order of liquidity , or how easily they can be turned into cash, sold or consumed. Bank accounts and other cash accounts should come first followed by fixed assets or tangible assets like buildings or equipment with a useful life longer than a year. Even intangible assets like intellectual properties, trademarks, and copyrights should be included. Anything you expect to convert into cash within a year are called current assets.

Current assets include:

• Money in a checking account
• Money in transit (money being transferred from another account)
• Accounts receivable (money owed to you by customers)
• Short-term investments
• Prepaid expenses
• Cash equivalents (currency, stocks, and bonds)

Long-term assets (or non-current assets), on the other hand, are things you don’t plan to convert to cash within a year.

Long-term assets include:

• Buildings and land
• Machinery and equipment (less accumulated depreciation )
• Intangible assets like patents, trademarks, copyrights, and goodwill (you would list the market value of what fair price a buyer might purchase these for)
• Long-term investments

Let’s say you own a vegan catering business called “Where’s the Beef”. As of December 31, your company assets are: money in a checking account, an unpaid invoice for a wedding you just catered, and cookware, dishes and utensils worth $900. Here’s how you’d list your assets on your balance sheet:

Liabilities

Next come your liabilities—your business’s financial obligations and debts.

List your liabilities by their due date. Just like assets, you’ll classify them as current liabilities (due within a year) and non-current liabilities (the due date is more than a year away). These are also known as short-term liabilities and long-term liabilities.

Your current liabilities might include:

• Accounts payable (what you owe suppliers for items you bought on credit)
• Wages you owe to employees for hours they’ve already worked
• Loans that you have to pay back within a year
• Credit card debt

And here are some non-current liabilities:

• Loans that you don’t have to pay back within a year
• Bonds your company has issued

Returning to our catering example, let’s say you haven’t yet paid the latest invoice from your tofu supplier. You also have a business loan, which isn’t due for another 18 months.

Here are Where’s the Beef’s liabilities:

Equity is money currently held by your company. This category is usually called “owner’s equity” for sole proprietorships and “stockholders’ equity” or “shareholders’ equity” for corporations. It shows what belongs to the business owners and the book value of their investments (like common stock, preferred stock, or bonds).

Owners’ equity includes:

• Capital (the amount of money invested into the business by the owners)
• Private or public stock
• Retained earnings (all your revenue minus all your expenses and distributions since launch)

Equity can also drop when an owner draws money out of the company to pay themself, or when a corporation issues dividends to shareholders.

For Where’s the Beef, let’s say you invested $2,500 to launch the business last year, and another $2,500 this year. You’ve also taken $9,000 out of the business to pay yourself and you’ve left some profit in the bank.

Here’s a summary of Where’s the Beef’s equity:

The balance sheet equation

This accounting equation is the key to the balance sheet:

Assets = Liabilities + Owner’s Equity

Assets go on one side, liabilities plus equity go on the other. The two sides must balance—hence the name “balance sheet.”

It makes sense: you pay for your company’s assets by either borrowing money (i.e. increasing your liabilities) or getting money from the owners (equity).

A sample balance sheet

We’re ready to put everything into a standard template ( you can download one here ). Here’s what a sample balance sheet looks like, in a proper balance sheet format:

Nice. Your balance sheet is ready for action.

Great. Now what do I do with it?

Because the balance sheet reflects every transaction since your company started, it reveals your business’s overall financial health. At a glance, you’ll know exactly how much money you’ve put in, or how much debt you’ve accumulated. Or you might compare current assets to current liabilities to make sure you’re able to meet upcoming payments.

You can also compare your latest balance sheet to previous ones to examine how your finances have changed over time. You’ll be able to see just how far you’ve come since day one. If you need help understanding your balance sheet or need help putting together a balance sheet, consider hiring a bookkeeper .

Here’s some metrics you can calculate using your balance sheet:

• Debt-to-equity ratio (D/E ratio): Investors and shareholders are interested in the D/E ratio of a company to understand whether they raise money through investment or debt. A high D/E ratio shows a business relies heavily on loans and financing to raise money.
• Working capital : This metric shows how much cash you would hold if you paid off all your debts. It signals to investors and lenders how capable you are to pay down your current liabilities.
• Return on Assets: A formula for calculating how much net income is being earned relative to the assets owned. The more income earned relative to the amount of assets, the higher performing a business is considered to be.

Next, we’ll cover the three most important ratios that you can calculate using your balance sheet: the current ratio, the debt-to-equity ratio, and the quick ratio.  

The current ratio

Can your company pay its debts? The current ratio measures the liquidity of your company—how much of it can be converted to cash, and used to pay down liabilities. The higher the ratio, the better your financial health in terms of liquidity .

The ratio for finding your current ratio looks like this:

Current Ratio = Current Assets / Current Liabilities

You should aim to maintain a current ratio of 2:1 or higher. Meaning, your company holds twice as much value in assets as it does in liabilities. If you had to, you could pay off all the money you owe two times over.

Once you drop below a current ratio of 2:1, your liquidity isn’t looking so good. And if you dip below 1:1, you’re entering hot water. That means you don’t have enough liquidity to pay off your debts.

You can improve your current ratio by either increasing your assets or decreasing your liabilities.

The quick ratio

Also called the acid test ratio, the quick ratio describes how capable your business is of paying off all its short-term liabilities with cash and near-cash assets. In this case, you don’t include assets like real estate or other long-term investments. You also don’t include current assets that are harder to liquidate, like inventory. The focus is on assets you can easily liquidate.

Here’s how you get the quick ratio:

Quick Ratio = (Cash and Cash Equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities

If your ratio is 1:1 or better, you’re sitting pretty. That means you’ve got enough quick-to-liquidate assets to cover all your short term liabilities in a pinch.

The debt-to-equity ratio

Similar to the current ratio and quick ratio, the debt-to-equity ratio measures your company’s relationship to debt. Only, in this case, the key value is your total equity.

This ratio tells you how much your company depends upon equity to keep running versus how much it depends on outside lenders. It’s calculated like this:

Debt to Equity Ratio = Total Outside Liabilities / Owner or Shareholders’ Equity

Generally speaking, a 2:1 ratio is considered acceptable. If the ratio gets bigger, you start running into trouble. It means your business relies heavily on debt to keep running, which turns off investors. The higher the ratio, the higher the chance that, in the event you need to pay off your debt, you’ll use up all your earnings and cash flows—and investors will end up empty-handed.

Examples of balance sheet analysis

We’ll do a quick, simple analysis of two balance sheets, so you can get a good idea of how to put financial ratios into play and measure your company’s performance.

Annie’s Pottery Palace, a large pottery studio, holds a lot of its current assets in the form of equipment—wheels and kilns for making pottery. Accounts receivable play a relatively minor role.

Liabilities are few—a small loan to pay off within the year, some wages owed to employees, and a couple thousand dollars to pay suppliers.

Annie’s is a single-member LLC—there are no shareholders, so her equity includes only her initial investment, retained earnings, and Annie’s draw($4,000).

Ratio analysis:

Current ratio: 22,000 / 7,000 = 3.14:1

Annie’s current ratio is very healthy. If necessary, her current assets could pay off her current liabilities more than three times over.

Quick ratio: 6,000 / 7,000 = 0.85:1

Her quick ratio isn’t looking so hot, though. Annie’s currently sitting just below 1:1, meaning she wouldn’t be able to quickly pay off debt.

Debt-to-equity ratio: 7,000 / 15,000 = 0.46:1

Annie’s debt-to-equity looks good. She’s got more than twice as much owner’s equity than she does outside liabilities, meaning she’s able to easily pay off all her external debt.

Final analysis:

Annie is able to cover all of her liabilities comfortably—until we take her equipment assets out of the picture. Most of her assets are sunk in equipment, rather than quick-to-cash assets. With this in mind, she might aim to grow her easily liquidated assets by keeping more cash on hand in the business checking account.

That being said, her owner’s equity is more than capable of covering her debt, so this problem shouldn’t be difficult to fix. It would be wise for Annie to take care of it before applying for loans or bringing on investors.

Example balance sheet analysis: Bill’s Book Barn LTD.

A lot of Bill’s assets are tied up in inventory—his large collection of books. The rest mostly consists of long-term investments and intangible assets. (Bill’s Book Barn is famous among collectors of rare fly-tying manuals; a business consultant valued his list of dedicated returning customers at $10,000.)

He doesn’t have a lot of liabilities compared to his assets, and all of them are short-term liabilities. Meaning, he’ll need to pay off that $17,000 within a year.

Finally, since Bill is incorporated, he has issued shares of his business to his brother Garth. Currently, Garth holds a $12,000 share in the business, a little shy of half its total equity.

Ratio analysis

Current ratio: 30,000 / 17,000 = 1.76:1

Since long-term investments and intangible assets are tough to liquidate, they’re not included in current assets—meaning Bill has $30,000 in assets he can more or less easily use to cover his liabilities. His ratio of 1.76:1 isn’t great—it doesn’t leave much wiggle room if he wants to pay off his liabilities. But it isn’t terrible, either—he’s just shy of a healthy 2:1 ratio.

Quick ratio: 7,000 / 17,000 = 0.41:1

Bill’s quick ratio is pretty dire—he’s well short of paying off his liabilities with cash and cash equivalents, leaving him in a bind if he needs to take care of that debt ASAP.

Debt-to-equity ratio: 17,000 / 15,000 = 1.13:1

Once we take into account his $13,000 owner’s draw, Bill’s owner’s equity comes to just $15,000, shy of his $17,000 in debt. Remember, an acceptable debt-to-equity ratio is 2:1. Bill is falling short of acceptable; if he had to pay off all his debts quickly, his equity wouldn’t cover it, and he’d need to dip into his company’s income. That makes his business unattractive to potential investors. Unless he changes course, Bill will have trouble getting financing for his business in the future.

Summary Analysis

Bill’s ratios don’t look great, but there’s hope. If he starts liquidating some of his long-term investments now, he can bump his current ratio up to 2:1, meaning he’d be in a healthy position to pay off liabilities with his current assets.

His quick ratio will take more work to improve. A lot of Bill’s assets are tied up in inventory. If he could convert some of that inventory to cash, he could improve his ability to pay of debt quickly in an emergency. He may want to take a look at his inventory, and see what he can liquidate. Maybe he’s got shelves full of books that have been gathering dust for years. If he can sell them off to another bookseller as a lot, maybe he can raise the $10,000 cash to become more financially stable.

Finally, unless he improves his debt-to-equity ratio, Bill’s brother Garth is the only person who will ever invest in his business. The situation could be improved considerably if Bill reduced his $13,000 owner’s draw. Unfortunately, he’s addicted to collecting extremely rare 18th century guides to bookkeeping. Until he can get his bibliophilia under control, his equity will continue to suffer.

Balance sheets can tell you a lot of information about your business, and help you plan strategically to make it more liquid, financially stable, and appealing to investors. But unless you use them in tandem with income statements and cash flow statements, you’re only getting part of the picture. Learn how they work together with our complete guide to financial statements .

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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 .

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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 ."

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 September 19, 2022

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.

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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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Free Balance Sheet Templates

By Andy Marker | January 7, 2019 (updated August 7, 2024)

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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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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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• Business Planning

Business Plan Financial Projections

Written by Dave Lavinsky

Financial projections are forecasted analyses of your business’ future that include income statements, balance sheets and cash flow statements. We have found them to be an crucial part of your business plan for the following reasons:

• They can help prove or disprove the viability of your business idea. For example, if your initial projections show your company will never make a sizable profit, your venture might not be feasible. Or, in such a case, you might figure out ways to raise prices, enter new markets, or streamline operations to make it profitable. 
• Financial projections give investors and lenders an idea of how well your business is likely to do in the future. They can give lenders the confidence that you’ll be able to comfortably repay their loan with interest. And for equity investors, your projections can give them faith that you’ll earn them a solid return on investment. In both cases, your projections can help you secure the funding you need to launch or grow your business.
• Financial projections help you track your progress over time and ensure your business is on track to meet its goals. For example, if your financial projections show you should generate $500,000 in sales during the year, but you are not on track to accomplish that, you’ll know you need to take corrective action to achieve your goal.

Below you’ll learn more about the key components of financial projections and how to complete and include them in your business plan.

What Are Business Plan Financial Projections?

Financial projections are an estimate of your company’s future financial performance through financial forecasting. They are typically used by businesses to secure funding, but can also be useful for internal decision-making and planning purposes. There are three main financial statements that you will need to include in your business plan financial projections:

1. Income Statement Projection

The income statement projection is a forecast of your company’s future revenues and expenses. It should include line items for each type of income and expense, as well as a total at the end.

There are a few key items you will need to include in your projection:

• Revenue: Your revenue projection should break down your expected sales by product or service, as well as by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Expenses: Your expense projection should include a breakdown of your expected costs by category, such as marketing, salaries, and rent. Again, it is important to be realistic in your estimates.
• Net Income: The net income projection is the difference between your revenue and expenses. This number tells you how much profit your company is expected to make.

Sample Income Statement

2. Cash Flow Statement & Projection

The cash flow statement and projection are a forecast of your company’s future cash inflows and outflows. It is important to include a cash flow projection in your business plan, as it will give investors and lenders an idea of your company’s ability to generate cash.

There are a few key items you will need to include in your cash flow projection:

• The cash flow statement shows a breakdown of your expected cash inflows and outflows by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Cash inflows should include items such as sales revenue, interest income, and capital gains. Cash outflows should include items such as salaries, rent, and marketing expenses.
• It is important to track your company’s cash flow over time to ensure that it is healthy. A healthy cash flow is necessary for a successful business.

Sample Cash Flow Statements

3. Balance Sheet Projection

The balance sheet projection is a forecast of your company’s future financial position. It should include line items for each type of asset and liability, as well as a total at the end.

A projection should include a breakdown of your company’s assets and liabilities by category. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.

It is important to track your company’s financial position over time to ensure that it is healthy. A healthy balance is necessary for a successful business.

Sample Balance Sheet

How to Create Financial Projections

Creating financial projections for your business plan can be a daunting task, but it’s important to put together accurate and realistic financial projections in order to give your business the best chance for success.  

Cost Assumptions

When you create financial projections, it is important to be realistic about the costs your business will incur, using historical financial data can help with this. You will need to make assumptions about the cost of goods sold, operational costs, and capital expenditures.

It is important to track your company’s expenses over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

Capital Expenditures, Funding, Tax, and Balance Sheet Items

You will also need to make assumptions about capital expenditures, funding, tax, and balance sheet items. These assumptions will help you to create a realistic financial picture of your business.

Capital Expenditures

When projecting your company’s capital expenditures, you will need to make a number of assumptions about the type of equipment or property your business will purchase. You will also need to estimate the cost of the purchase.

When projecting your company’s funding needs, you will need to make a number of assumptions about where the money will come from. This might include assumptions about bank loans, venture capital, or angel investors.

When projecting your company’s tax liability, you will need to make a number of assumptions about the tax rates that will apply to your business. You will also need to estimate the amount of taxes your company will owe.

Balance Sheet Items

When projecting your company’s balance, you will need to make a number of assumptions about the type and amount of debt your business will have. You will also need to estimate the value of your company’s assets and liabilities.

Financial Projection Scenarios

Write two financial scenarios when creating your financial projections, a best-case scenario, and a worst-case scenario. Use your list of assumptions to come up with realistic numbers for each scenario.

Presuming that you have already generated a list of assumptions, the creation of best and worst-case scenarios should be relatively simple. For each assumption, generate a high and low estimate. For example, if you are assuming that your company will have $100,000 in revenue, your high estimate might be $120,000 and your low estimate might be $80,000.

Once you have generated high and low estimates for all of your assumptions, you can create two scenarios: a best case scenario and a worst-case scenario. Simply plug the high estimates into your financial projections for the best-case scenario and the low estimates into your financial projections for the worst-case scenario.

Conduct a Ratio Analysis

A ratio analysis is a useful tool that can be used to evaluate a company’s financial health. Ratios can be used to compare a company’s performance to its industry average or to its own historical performance.

There are a number of different ratios that can be used in ratio analysis. Some of the more popular ones include the following:

• Gross margin ratio
• Operating margin ratio
• Return on assets (ROA)
• Return on equity (ROE)

To conduct a ratio analysis, you will need financial statements for your company and for its competitors. You will also need industry average ratios. These can be found in industry reports or on financial websites.

Once you have the necessary information, you can calculate the ratios for your company and compare them to the industry averages or to your own historical performance. If your company’s ratios are significantly different from the industry averages, it might be indicative of a problem.

Be Realistic

When creating your financial projections, it is important to be realistic. Your projections should be based on your list of assumptions and should reflect your best estimate of what your company’s future financial performance will be. This includes projected operating income, a projected income statement, and a profit and loss statement.

Your goal should be to create a realistic set of financial projections that can be used to guide your company’s future decision-making.

Sales Forecast

One of the most important aspects of your financial projections is your sales forecast. Your sales forecast should be based on your list of assumptions and should reflect your best estimate of what your company’s future sales will be.

Your sales forecast should be realistic and achievable. Do not try to “game” the system by creating an overly optimistic or pessimistic forecast. Your goal should be to create a realistic sales forecast that can be used to guide your company’s future decision-making.

Creating a sales forecast is not an exact science, but there are a number of methods that can be used to generate realistic estimates. Some common methods include market analysis, competitor analysis, and customer surveys.

Create Multi-Year Financial Projections

When creating financial projections, it is important to generate projections for multiple years. This will give you a better sense of how your company’s financial performance is likely to change over time.

It is also important to remember that your financial projections are just that: projections. They are based on a number of assumptions and are not guaranteed to be accurate. As such, you should review and update your projections on a regular basis to ensure that they remain relevant.

Creating financial projections is an important part of any business plan. However, it’s important to remember that these projections are just estimates. They are not guarantees of future success.

Business Plan Financial Projections FAQs

What is a business plan financial projection.

A business plan financial projection is a forecast of your company's future financial performance. It should include line items for each type of asset and liability, as well as a total at the end.

What are annual income statements? 

The Annual income statement is a financial document and a financial model that summarize a company's revenues and expenses over the course of a fiscal year. They provide a snapshot of a company's financial health and performance and can be used to track trends and make comparisons with other businesses.

What are the necessary financial statements?

The necessary financial statements for a business plan are an income statement, cash flow statement, and balance sheet.

How do I create financial projections?

You can create financial projections by making a list of assumptions, creating two scenarios (best case and worst case), conducting a ratio analysis, and being realistic.

Plan Projections

ideas to numbers .. simple financial projections

Home > Financial Projections > Balance Sheet Forecast in a Business Plan

Balance Sheet Forecast in a Business Plan

The balance sheet forecast is one of the three main statements for business plan financials, and is sometimes referred to as the statement of financial position.

The balance sheet is in effect a representation of the two sides of the accounting equation . On one side of the balance sheet are the assets (property, plant, equipment, accounts receivables, cash etc.), and on the other side are the methods by which those assets are funded, which can either be liabilities (debt finance, accounts payable etc.) or equity (shareholder capital, and profits retained within the business).

There are many balance sheet formats, the layout below acts as a quick reference, and sets out the most commonly encountered accounting terms when dealing with a business plan balance sheet forecast.

As an example, the annual report for apple shows a typical balance sheet layout.

Use of the Projected Balance Sheet Forecast

The business plan financial section for most businesses tends to concentrate on the income statement and fails to get to grips with the accounting balance sheet. Our financial projections template  always includes the balance sheet template.

• Management should use the projected balance sheet forecast to help identify whether the need for working capital (inventory plus accounts receivable less accounts payable) is growing, and how that need is being funded (cash, overdraft, loans etc).
• They are used by trade suppliers to decide on whether credit is given as they identify the net assets and cash position of the business.
• Bank managers utilise the balance sheet forecast, as they base their lending ratios on certain aspects of it, for example the current ratio = current assets / current liabilities is used to determine liquidity and the risk of non repayment of a loan.
• Balance sheet forecasts are used by investors to decide whether to invest or not and at what price. For example they will look at the debt / equity ratio to determine the level of risk involved

Any number of people could be using your balance sheet forecast to make decisions about your business. It is important that you have an understanding of what information the balance sheet forecast is providing and what that information is telling you.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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Balance Sheet

Step-by-Step Guide to Understanding the Balance Sheet (Assets = Liabilities + Shareholders Equity)

Learn Online Now

What is Balance Sheet?

The Balance Sheet —or Statement of Financial Position—is a core financial statement that reports a snapshot of a company’s assets, liabilities, and shareholders’ equity at a particular point in time.

In practice, the balance sheet offers insights into the current state of a company’s financial position at a predefined point in time, akin to a snapshot.

The composition of the balance sheet is composed of three pieces, which are assets, liabilities, and shareholders’ equity.

• The balance sheet is a financial statement that provides a snapshot of a company’s assets, liabilities, and shareholders’ equity at a specific point in time.
• The fundamental accounting equation—Assets = Liabilities + Shareholders’ Equity—underpins the balance sheet and the interconnections among each line item.
• The assets section is listed in descending liquidity and separated into current assets and non-current assets.
• The liabilities section is listed in order of how close their due dates are and split between current liabilities (<12 months) and non-current liabilities (>12 months).
• The shareholders’ equity section represents the residual value—or “net worth”—remaining upon deducting total liabilities from the total assets of a company.
• The balance sheet offers practical insights into a company’s current financial position and is used to perform ratio analysis to measure operating efficiency, liquidity, solvency, and leverage risk.

Table of Contents

Balance Sheet Template: Standard Format

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The balance sheet reflects the carrying values of a company’s assets , liabilities , and shareholders’ equity at a specific point in time.

Conceptually, a company’s assets refer to the resources belonging to the company with positive economic value, which must have been funded somehow.

The two funding sources available for companies are liabilities and shareholders’ equity, which reflect how the resources were purchased.

In simple terms, the balance sheet—also known as the “statement of financial position”—provides a comprehensive overview of a company’s assets (“what is owned”) and liabilities (“what is owed”) in a given period.

The difference between a company’s total assets and total liabilities results in shareholders’ equity (or “net assets”).

The standard format and three components of the balance sheet are each described in the following illustrative chart:

The fundamental accounting equation states that a company’s assets must be equal to the sum of its liabilities and shareholders’ equity.

If the fundamental accounting equation is not true in a financial model—i.e. the balance sheet does not “balance”—the financial model contains an error in all likelihood.

The three components of the equation will now be described in further detail in the following sections.

Once complete, we’ll undergo an interactive training exercise in Excel, where we’ll practice building a balance sheet template using the historical data pulled from the 10-K filing of Apple (AAPL) .

1. Assets Section (Current vs. Non-Current)

Assets describe resources with economic value that can be sold for money or have the potential to provide monetary benefits someday in the future.

The assets section is ordered in terms of liquidity, i.e. line items are ranked by how quickly the asset can be liquidated and turned into cash on hand.

On the balance sheet, a company’s assets are separated into two distinct sections:

• Current Assets ➝ The short-term assets that can or are expected to be converted into cash within one year (<12 months)
• Non-Current Assets ➝ The long-term assets expected to provide economic benefits to the company in excess of one year (>12 months).

While current assets can be converted into cash within a year, liquidating non-current assets, such as fixed assets (PP&E), can be a time-consuming process.

Furthermore, a substantial discount is normally necessary to find a suitable buyer to sell the fixed asset in the open markets.

The most common current assets are defined in the table below.

The next section consists of non-current assets, which are described in the table below.

2. Liabilities Section (Current vs. Non-Current)

Similar to the order in which assets are displayed, liabilities are listed in terms of how near-term the cash outflow date is, i.e. the near-term liabilities coming due on an earlier date are listed at the top.

Liabilities are also separated into two parts on the basis of their maturity date:

• Current Liabilities ➝ Short-term liabilities are expected to be paid off within one year (e.g. accounts payable)
• Non-Current Liabilities ➝ Long-term liabilities are not likely to come due for at least one year (e.g. long-term debt).

The most frequent current liabilities that appear on the balance sheet are the following:

The most common non-current liabilities include:

3. Shareholders Equity Section

The second source of funding—other than liabilities—is shareholders equity (or “stockholders equity”), which consists of the following line items.

The balance sheet of Apple (AAPL), a global consumer electronics and software company, for the fiscal year ending 2021 is shown below.

Sample Apple Balance Sheet Template (Source: AAPL 10-K )

While the financial statements are closely intertwined and necessary to understand a company’s financial health, the balance sheet is particularly useful for ratio analysis.

The following chart contains some of the most common metrics used in practice to analyze a company’s balance sheet.

The three core financial statements—income statement, balance sheet, and cash flow statement—are intricately connected and collectively present a comprehensive view of a company’s current financial condition.

• Income Statement ➝ The income statement, often used interchangeably with the term “profit and loss statement (P&L)”, records the revenue, costs, expenses, and net income (the “bottom line”) for a specified period. The net income, or accounting profitability, flows in as the starting line item on the cash flow statement (CFS).
• Cash Flow Statement ➝ The cash flow statement is composed of three sections—the cash from operating, investing, and financing activities—with each section reconciling the company’s reported net income to track the actual movement of cash in the stated period (i.e. the “inflow” and “outflow” of cash).
• Balance Sheet ➝ The balance sheet, or statement of financial position, presents a snapshot of a company’s assets, liabilities, and shareholders’ equity at a specific point in time. The cash flow statement captures the changes in working capital line items to ensure the reflected cash balance is the actual cash balance available at the end of the given period.

The retained earnings line item is the centerpiece that ties the three financial statements together.

Conceptually, retained earnings reflect the cumulative earnings kept by a company since its inception rather than distributing excess funds in the form of shareholder dividends .

The ending retained earnings balance recognized on the balance sheet equals the beginning balance plus net income , net of any dividend issuances to shareholders.

The ending cash balance on the cash flow statement ( CFS ) must match the cash balance recognized on the balance sheet for the current period.

We’ll now move on to a modeling exercise, which you can access by filling out the form below.

Excel Template | File Download Form

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Suppose we’re tasked with building a 3-statement model for Apple (NASDAQ: AAPL) and are currently preparing the company’s historical balance sheet data.

Using the screenshot from earlier, we’ll enter Apple’s historical balance sheet into Excel.

The hard-coded inputs are entered in blue font, while the calculations (i.e. the ending total for each section) are in black font.

Why? The color formatting abides by general financial modeling best practices, which make building a financial model easier for the one creating the model and for purposes of auditing.

However, rather than copying every data point in the same format as reported by Apple in its public filings, we must make discretionary adjustments that we deem appropriate for modeling purposes.

• Marketable Securities ➝ For instance, marketable securities are consolidated into the cash and cash equivalents line item because the underlying drivers are identical.
• Short-Term Debt ➝ The short-term portion of Apple’s long-term debt is consolidated into one combined line item since the mechanics of the debt schedule roll-forward are the same.

However, that does not mean all remotely similar line items should be combined, as seen in the case of Apple’s commercial paper .

Commercial paper is a form of short-term debt with a specific purpose, different from long-term debt. Since commercial paper is a debt-like security, certain financial models consolidate commercial paper with the revolving credit facility (“revolver”) line item.

Once Apple’s historical data is input in our Excel template, with the proper adjustments to streamline our financial model, we’ll calculate the profit metrics denoted in black font as a standard modeling convention (and “best practice”).

• Blue Font ➝ Hardcoded Input
• Black Font ➝ Calculation (or Cell Reference)

The formula for each bolded cell is as follows:

• Total Current Assets = Cash and Cash Equivalents + Accounts Receivable, net + Inventories + Other Current Assets
• Total Assets = Total Current Assets + Property, Plant and Equipment, net + Other Non-Current Assets
• Total Current Liabilities = Accounts Payable + Other Current Liabilities + Commercial Paper + Deferred Revenue
• Total Liabilities = Total Current Liabilities + Long-Term Debt + Other Non-Current Liabilities
• Total Shareholders’ Equity = Common Stock and APIC + Retained Earnings + Other Comprehensive Income / (Loss)

Note that in our basic balance sheet template, the “Total Assets” and “Total Liabilities” line items include the values of the “Total Current Assets” and “Total Current Liabilities”, respectively.

In other cases, the balance sheet presentation will be divided into two parts: “Current” and “Non-Current.”

Upon completion, the final step is to ensure the fundamental accounting equation remains true by subtracting total assets from the sum of the total liabilities and shareholders’ equity, which comes out to zero, confirming our balance sheet is indeed “balanced.”

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Example balance sheet.

A balance sheet is a snapshot of what a business owns (assets) and owes (liabilities) at a specific point in time.

It is made up of the following three sections:

• assets – including cash, stock, equipment, money owed to business, goodwill
• liabilities – including loans, credit card debts, tax liabilities, money owed to suppliers
• owner’s equity – the amount left after liabilities are deducted from assets

Example of a balance sheet

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Balance Sheet

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on March 17, 2023

Get Any Financial Question Answered

Table of contents, what is a balance sheet.

A balance sheet is a financial statement that shows the relationship between assets , liabilities , and shareholders’ equity of a company at a specific point in time.

Measuring a company’s net worth, a balance sheet shows what a company owns and how these assets are financed, either through debt or equity .

Balance sheets are useful tools for individual and institutional investors, as well as key stakeholders within an organization, as they show the general financial status of the company.

It is also possible to grasp the information found in a balance sheet to calculate important company metrics, such as profitability, liquidity, and debt-to-equity ratio.

However, it is crucial to remember that balance sheets communicate information as of a specific date. Naturally, a balance sheet is always based upon past data.

While stakeholders and investors may use a balance sheet to predict future performance, past performance does not guarantee future results.

In order to see the direction of a company, you will need to look at balance sheets over a time period of months or years.

How Balance Sheets Work

A balance sheet is guided by the accounting equation:

Both parts should be equal to each other or balance each other out. This means that the assets of a company should equal its liabilities plus any shareholders’ equity that has been issued. Hence, a balance sheet should always balance.

For instance, if a company takes out a ten-year, $8,000 loan from a bank, the assets of the company will increase by $8,000. Its liabilities will also increase by $8,000, balancing the two sides of the accounting equation .

If the company takes $10,000 from its investors, its assets and stockholders’ equity will also increase by that amount.

The revenues of the company in excess of its expenses will go into the shareholder equity account.

These revenues will be balanced on the asset side of the equation, appearing as inventory, cash , investments , or other assets.

Components of a Balance Sheet

A balance sheet has three primary components: assets, liabilities, and shareholders’ equity.

Assets are anything the company owns that holds some quantifiable value, which means that they could be liquidated and turned into cash.

These can include cash, investments, and tangible objects.

Companies divide their assets into two categories: current assets and noncurrent (long-term) assets.

Current Assets

Current assets are typically those that a company expects to convert easily into cash within a year.

These assets include cash and cash equivalents, prepaid expenses, accounts receivable, marketable securities, and inventory.

Non-Current Assets

Noncurrent assets are long-term investments that the company does not expect to convert into cash within a year or have a lifespan of more than one year.

Noncurrent assets include tangible assets , such as land, buildings, machinery, and equipment.

They can also be intangible assets, such as trademarks, patents, goodwill, copyright , or intellectual property.

Liabilities

Liabilities are anything a company owes. These are loans, accounts payable, bonds payable, or taxes.

Like assets, liabilities can be classified as either current or noncurrent liabilities.

Current Liabilities

Current liabilities refer to the liabilities of the company that are due or must be paid within one year.

This may include accounts payables, rent and utility payments, current debts or notes payables, current portion of long-term debt, and other accrued expenses.

Noncurrent Liabilities

Noncurrent or long-term liabilities are debts and other non-debt financial obligations that a company does not expect to repay within one year from the date of the balance sheet.

This may include long-term loans, bonds payable, leases, and deferred tax liabilities.

Shareholder’s Equity

Shareholder’s equity is the net worth of the company and reflects the amount of money left over if all liabilities are paid, and all assets are sold.

Shareholders’ equity belongs to the shareholders, whether public or private owners.

Retained Earnings

Shareholders’ equity reflects how much a company has left after paying its liabilities.

If the company wanted to, it could pay out all of that money to its shareholders through dividends . However, the company typically reinvests the money into the company.

Retained earnings are the money that the company keeps.

Share Capital

Share capital is the value of what investors have invested in the company.

For instance, if someone invests $200,000 to help you start a company, you would count that $200,000 in your balance sheet as your cash assets and as part of your share capital.

Stocks can be common or preferred stocks .

Common stock is those that people get when they buy stock through the stock market . Preferred stock, on the other hand, provides the shareholder with a greater claim on the company’s assets and earnings.

You can also see treasury stock on a balance sheet. This stock is a previously outstanding stock that is purchased from stockholders by the issuing company.

Example of a Balance Sheet

Below is an example of a balance sheet of Tesla for 2021 taken from the U.S. Securities and Exchange Commission .

As you can see, it starts with current assets, then the noncurrent, and the total of both.

Below the assets are the liabilities and stockholders’ equity, which include current liabilities, noncurrent liabilities, and shareholders’ equity.

For example, this balance sheet tells you:

• The reporting period ends December 31, 2021, and compares against a similar reporting period from the year prior.
• The assets of the company total $62,131, including $27,100 in current assets and $35,031 in noncurrent assets.
• The liabilities of the company total $30,548, including $19,705 in current liabilities and $10,843 in noncurrent liabilities.
• The company retained $331 in earnings during the reporting period, greatly less than the same period a year prior.
• Adhering to the accounting equation, a balance is obtained by the total assets of $62,131 and the combined total liabilities and stockholders’ equity which is $62,131.

It is crucial to note that how a balance sheet is formatted differs depending on where the company or organization is based.

How to Prepare a Balance Sheet

The balance sheet is prepared using the following steps:

Step 1: Determine the Reporting Date and Period

The balance sheet previews the total assets, liabilities, and shareholders’ equity of a company on a specific date, referred to as the reporting date.

Often, the reporting date will be the final day of the reporting period. Companies that report annually, like Tesla, often use December 31st as their reporting date, though they can choose any date.

There are also companies, like publicly traded ones, that will report quarterly. For this case, the reporting date will usually fall on the last day of the quarter:

• Q1: March 31
• Q2: June 30
• Q3: September 30
• Q4: December 31

However, it is common for a balance sheet to take a few days or weeks to prepare after the reporting period has ended.

Step 2: Identify Your Assets

You will need to tally up all your assets of the company on the balance sheet as of that date. This will include both current and noncurrent assets.

Assets are typically listed as individual line items and then as total assets in a balance sheet.

This will make it easier for analysts to comprehend exactly what your assets are and where they came from. Tallying the assets together will be required for final analysis.

Step 3: Identify Your Liabilities

Like assets, you need to identify your liabilities which will include both current and long-term liabilities.

Again, these should be organized into both line items and total liabilities. They should also be both subtotaled and then totaled together.

Step 4: Calculate Shareholders’ Equity

After you have assets and liabilities, calculating shareholders’ equity is done by taking the total value of assets and subtracting the total value of liabilities.

Shareholders’ equity will be straightforward for companies or organizations that a single owner privately holds.

The calculation may be complicated for publicly held companies depending on the various types of stock issued.

Line items in this section include common stocks, preferred stocks, share capital, treasury stocks, and retained earnings.

Step 5: Add Total Liabilities to Total Shareholders’ Equity and Compare to Assets

Adding total liabilities to shareholders’ equity should give you the same sum as your assets. If not, then there may be an error in your calculations.

Causes of a balance sheet not truly balancing may be:

• Errors in inventory
• Incorrectly entered transactions
• Incomplete or misplaced data
• Miscalculated loan amortization or depreciation
• Errors in currency exchange rates
• Miscalculated equity calculations

How to Analyze a Balance Sheet

Financial ratio analysis is the main technique to analyze the information contained within a balance sheet.

It uses formulas to obtain insights into a company and its operations.

Using financial ratios in analyzing a balance sheet, like the debt-to-equity ratio, can produce a good sense of the financial condition of the company and its operational efficiency.

It is crucial to remember that some ratios will require information from more than one financial statement, such as from the income statement and the balance sheet.

There are two types of ratios that use data from a balance sheet. These are:

Financial Strength Ratios

Financial strength ratios can provide investors with ideas of how financially stable the company is and whether it finances itself.

It also yields information on how well a company can meet its obligations and how these obligations are leveraged.

Financial strength ratios can include the working capital and debt-to-equity ratios.

Activity Ratios

Activity ratios mainly focus on current accounts to reveal how well the company manages its operating cycle .

These operating cycles can include receivables, payables, and inventory.

Examples of activity ratios are inventory turnover ratio, total assets turnover ratio, fixed assets turnover ratio, and accounts receivables turnover ratio.

These ratios can yield insights into the operational efficiency of the company.

Importance of a Balance Sheet

There are a few key reasons why a balance sheet is important. Here are a few of them:

Balance Sheets Examine Risk

A balance sheet lists all assets and liabilities of a company.

With this information, a company can quickly assess whether it has borrowed a large amount of money, whether the assets are not liquid enough, or whether it has enough current cash to fulfill current demands.

Balance Sheets Secure Capital

A lender will usually require a balance sheet of the company in order to secure a business plan.

Additionally, a company must usually provide a balance sheet to private investors when planning to secure private equity funding.

These are some of the cases in which external parties want to assess and check a company’s financial stability and health, its creditworthiness, and whether the company will be able to settle its short-term debts.

Balance Sheets are Needed for Financial Ratios

Business owners use these financial ratios to assess the profitability, solvency, liquidity , and turnover of a company and establish ways to improve the financial health of the company.

Some financial ratios need data and information from the balance sheet.

Balance Sheets Lure and Retain Talents

Good and talented employees are always looking for stable and secure companies to work in.

Balance sheets that are disclosed from public companies allow employees a chance to review how much the company has on hand and whether the financial health of the company is in accordance with their expectations from their employers.

Limitations of a Balance Sheet

Although balance sheets are important financial statements, they do have their limitations. Here are some of them:

Balance Sheets are Static

It may not provide a full snapshot of the financial health of a company without data from other financial statements.

In order to get a complete understanding of the company, business owners and investors should review other financial statements, such as the income statement and cash flow statement.

Balance Sheets Have a Narrow Scope of Timing

The balance sheet only reports the financial position of a company at a specific point in time.

This may not provide an accurate portrayal of the financial health of a company if the market conditions rapidly change or without knowledge of previous cash balance and understanding of industry operating demands.

Balance Sheets May Be Susceptible to Errors and Fraud

The data and information included in a balance sheet can sometimes be manipulated by management in order to present a more favorable financial position for the company.

Businesses should be wary of companies that have large discrepancies between their balance sheets and other financial statements.

It is also helpful to pay attention to the footnotes in the balance sheets to check what accounting systems are being used and to look out for red flags.

Balance Sheets Are Subject to Several Professional Judgment Areas That Could Impact the Report

For instance, accounts receivable should be continually assessed for impairment and adjusted to reveal potential uncollectible accounts.

A company should make estimates and reflect their best guess as a part of the balance sheet if they do not know which receivables a company is likely actually to receive.

Balance Sheets vs. Income Statements

Here are some key differences between balance sheets and income statements:

The Bottom Line

Balance sheets are important financial statements that provide insights into the assets, liabilities, and shareholders’ equity of a company.

It is helpful for business owners to prepare and review balance sheets in order to assess the financial health of their companies.

Balance sheets also play an important role in securing funding from lenders and investors. Additionally, it helps businesses to retain talents.

Although balance sheets are important, they do have their limitations, and business owners must be aware of them.

Some of its limitations are that it is static, has a narrow scope of timing, and is subject to errors and frauds.

A balance sheet is also different from an income statement in several ways, most notably the time frame it covers and the items included.

It is important to understand that balance sheets only provide a snapshot of the financial position of a company at a specific point in time.

In order to get a more accurate understanding of the company, business owners and investors should review other financial statements, such as the income statement and cash flow statement.

Balance Sheet FAQs

What is included in the balance sheet.

Balance sheets include assets, liabilities, and shareholders' equity. Assets are what the company owns, while liabilities are what the company owes. Shareholders' equity is the portion of the business that is owned by the shareholders.

Who prepares the balance sheet?

The balance sheet is prepared by the management of the company. The auditor of the company then subjects balance sheets to an audit. Balance sheets of small privately-held businesses might be prepared by the owner of the company or its bookkeeper. On the other hand, balance sheets for mid-size private firms might be prepared internally and then reviewed over by an external accountant.

What is the balance sheet formula?

The balance sheet equation is: Assets = Liabilities + Shareholders' Equity

What is the purpose of the balance sheet?

The balance sheet is used to assess the financial health of a company. Investors and lenders also use it to assess creditworthiness and the availability of assets for collateral.

How often are balance sheets required?

Balance sheets are typically prepared at the end of set periods (e.g., annually, every quarter). Public companies are required to have a periodic financial statement available to the public. On the other hand, private companies do not need to appeal to shareholders. That is why there is no need to have their financial statements published to the public.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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• Financial tools and templates

Set up a balance sheet

A balance sheet shows your business assets (what you own) and liabilities (what you owe) on a particular date. Use our template to set up a balance sheet and understand your business's financial health.

On this page

Why you need a balance sheet

Create your balance sheet, complete your balance sheet.

The balance sheet provides a picture of the financial health of a business at a given moment in time. It lists all of your business's assets and liabilities. You can then find out what your net assets are at that time.

A balance sheet can also help you work out your:

• working capital – money needed to fund day-to-day operations
• business liquidity – how quickly you could pay your current debts.

Download our template to create your balance sheet.

Balance sheet template

For each year, you need to fill in actual or estimated figures against each of the below items. If you use estimated costs, make sure to label them clearly.

You also need to clearly state on your balance sheet whether your figures are GST inclusive or exclusive.

Current assets

Current assets are assets that you can convert into cash within one year or less. This includes:

• pre-paid expenses.

Fixed assets

Fixed assets are long-term assets that a company owns and uses in its operations. This includes:

• property and land
• equipment and tools
• furniture and renovations.

Total assets

Calculate total assets by adding all current and fixed assets.

Current liabilities

Current liabilities (or short-term liabilities) are liabilities that are due and payable within one year. This includes:

• credit cards payable
• accounts payable
• interest payable
• accrued wages
• income tax.

Long-term liabilities

Long term liabilities are liabilities that are due after a year or more. This includes loans.

Total liabilities

Calculate total liabilities by adding all current and long-term liabilities.

Calculate net assets by subtracting total liabilities from total assets.

Check our information on how to organise your finances.

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