Balance Sheet
Contents
Overview
What is a balance sheet?
Create a balance sheet
Overview
A balance sheet is a financial statement that shows a snapshot of a company's financial position at a specific point in time. It lists the company's assets, liabilities, and equity. If you are registered with Companies House, you will usually be required to file a balance sheet.
In simple terms, a balance sheet provides a picture of a company's assets, what it owes, and its overall financial health.
What is a balance sheet?
What is a balance sheet?
The balance sheet equation is: Assets = Liabilities + Equity. This equation shows that a company's assets are funded by either borrowing money (liabilities) or using funds from the owners (equity).
Assets are what the company owns, such as cash, equipment, inventory, and property.
Liabilities are what the company owes, such as loans and accounts payable. Equity represents the company's net worth and includes items like stockholder investments and retained earnings.
Create a balance sheet
Create a balance sheet
To create a balance sheet, follow these steps:
Determine the date: The balance sheet shows a snapshot of a company's financial position on a specific date. Choose a date that is relevant to your purposes, such as the end of a month or a fiscal year.
List assets: On the left-hand side of the balance sheet, list all of the company's assets, such as cash, accounts receivable, inventory, investments, property, and equipment. Assets should be listed in order of liquidity, meaning the items most easily converted to cash should be listed first.
Calculate total assets: Add up all of the assets to find the total amount of assets the company has.
List liabilities: On the right-hand side of the balance sheet, list all of the company's liabilities, such as loans, accounts payable, and taxes owed. Liabilities should be listed in order of priority, meaning the items that need to be paid first should be listed first.
Calculate total liabilities: Add up all of the liabilities to find the total amount of money the company owes.
Calculate equity: To find the company's equity, subtract the total liabilities from the total assets. Equity represents the company's net worth and includes items like stockholder investments and retained earnings.
Finalise the balance sheet: Make sure that the total assets match the total liabilities plus equity. This relationship is the basic equation of a balance sheet: Assets = Liabilities + Equity.
Present the balance sheet: The final balance sheet should be neat and easy to read, with clear headings and labels for each section. You can also include additional information, such as the company's mission statement or a summary of key financial ratios.
NB. You must sign the balance sheet before filing at Companies House and it must balance!