Working on a balance sheet template can seem like a daunting task. Perhaps, in the beginning, it can be so, but some practice will show that it isn’t that difficult to maintain one. Furthermore, to be a successful entrepreneur, you need a sample balance sheet to learn more about your business by reviewing its contents. An Excel balance sheet is one of the three most important financial statements involved in tracking business performance.
- 1 Balance Sheet Templates
- 2 Parts of a balance sheet document
- 3 Equity or Earnings
- 4 Balance Sheet Examples
- 5 How to create a balance sheet?
- 6 Create the section for the assets
- 7 Prepare the section for the liabilities
- 8 Balance Sheet Samples
- 9 Calculating the owner’s equity
- 10 Using the balance sheet template
Balance Sheet Templates
Parts of a balance sheet document
Generally, a balance sheet template is the financial status statement of a company that lists its liabilities, assets, and the owner’s equity at a specific time period. Simply stated, a balance sheet example shows the net worth of your business.
Aside from this, you may also use a balance sheet sample to decide how you can resolve financial obligations and determine the best possible ways to make use of credit for financing your business operations. Of the three most important financial statements, the most significant is a simple balance sheet.
This document gives you an overview of the financial situation of your business. Although preparing a balance sheet is just an option for a single proprietorship or partnership businesses, it is nevertheless essential for monitoring how your business is actually doing. It’s important that this sheet is always accurate and up-to-date.
This is even more important if you’re looking for added equity financing or debt or if you’re planning to sell your business where there’s a need to establish the net worth. All the account items entered in your ledger get categorized as either assets, liabilities or equities. You can see the relationship of these three into a simple formula:
Assets = Liabilities + Equity
Entry items a sample balance sheet can vary from one business to another. In general, a balance sheet example has these three essential parts:
Assets can be further categorized as liquid and non-liquid. The former refers to assets in the form of cash or anything that you can easily convert to cash, whereas the latter refers to assets that you cannot easily convert to cash like buildings, equipment, and land.
There are also intangible assets that are a lot harder to value. According to the guidelines of Generally Accepted Accounting Principles, intangible assets are only allowed to be part of your balance sheet format if:
- They’re assets acquired that have a lifespan
- They have a fair market value that’s clearly identifiable and can get amortized
Enter these assets in an Excel balance sheet at their original cost less the depreciation. Intangible assets include items like copyrights, patents, and franchise agreements.
These refer to the funds that the business owes that fall under two categories:
- Current liabilities are the ones due within a year. Some examples are:
Contributions to pension plans
Equipment and building rents
Income tax deductions
Payments for medical plans
Sales tax or services and goods tax-charged on purchases
Temporary loans, credit lines or overdrafts
- Long-term liabilities are those due after a period of one year and include items like:
deferred tax liabilities
long-term debts like principal and interest on bonds
pension fund liabilities
Equity or Earnings
This is also referred to as shareholder’s equity and what remains after you subtract liabilities from assets. The retained earnings are the earnings the company keeps that aren’t paid to the shareholders.
You can use retained earnings to pay debts or reinvest these in your business during times when there are more opportunities for growth. Usually, when the company is in growth mode, you can use retained earnings to fund expansion instead of paying it out to the shareholders as dividends.
Balance Sheet Examples
How to create a balance sheet?
The three most important financial statements of a business entity are an income statement, a cash flow statement, and a balance sheet template. Most, if not all financial professionals, make use of the balance sheet format to determine the financial viability of the business. Here are some steps to follow when creating a simple balance sheet:
Setting the balance sheet up
- Use the accounting formula to make your balance sheet sample. As we have taken earlier, the formula is
Assets = Liabilities + Equity
This means that the balance sheet will have three sections – the assets, liabilities, and owner’s equity.
- The company’s ledger usually contains the information required to complete the balance sheet template. It’s in its pages that you record all the financial transactions for a certain period.
- A sample balance sheet is generally created to show assets, liabilities, and equity of a business on a particular date. It’s a practice with companies to prepare this sheet quarterly and by the end of each fiscal year.
- Prepare your balance sheet’s header. Place the title “Balance Sheet” on the top of the sheet and just below it, your organization’s name, and the effective date.
Create the section for the assets
- List all of the current assets that you can convert to cash within a year of the Excel balance sheet date. List these in their order of liquidity, meaning their ease of converting them to cash.
- List all known non-current or long-term assets. These are the business’ value of equipment and property that you can use for over one year, less depreciation.
- Include all intangible assets which are the non-monetary assets that don’t have physical substance but will last for more than a year.
- Add the totals of the non-current and current assets and label the amount as “Total Assets.” This amount should be equal to the number of total assets from your business’ general ledger. You need to check and resolve the issue should there be a difference in these totals.
Prepare the section for the liabilities
- Determine the current liabilities due within a year of your balance sheet sample date. The most common of the current liabilities are short-term notes payable, accrued liabilities, and accounts payable.
- Calculate all of the long-term liabilities that you cannot settle within a year of the balance sheet date. These may include long-term mortgages and notes, pension plan obligations, and bonds payable.
- Add the subtotal of the current liabilities to the subtotal of the long-term liabilities. Label the sum of these liabilities as “Total Liabilities.” This will appear as the second section of your sheet which you will later add to the value of the owner’s equity.
Balance Sheet Samples
Calculating the owner’s equity
- Calculate the retained earnings or the profit amount that your business has earned for a specific period of time. You need the retained earnings ending balance from the last period, then add the value of the net income from your company’s income statement. Next, subtract the dividends given to investors to get value for retained earnings.
- Calculate the owner’s equity using the contributed capital and the company’s retained earnings. You need to list down all of the company’s equity accounts including common stocks, retained earnings, and treasury stock.
- Add the amounts of the “Total Owner’s Equity” and “Total Liabilities.” Label the amount you come up with as “Total Liabilities and Equity.” You know that you’ve performed the calculations correctly if the “Total Assets” and the “Total Liabilities and Equity” are equal.
- If they are, then the balance sheet template is done. If not, you need to review and recheck your work. It could be an error of omission, duplication or a wrong categorization of one of the accounts.
Using the balance sheet template
To reiterate, the balance sheet template is one of the best indicators of your business’ current and future financial health. You may use this tool for internal purposes and for discussing your business with people outside of the company. When running a business, it’s natural that money would be constantly flowing in and out of the company’s accounts.
Getting to understand your company’s health could often feel overwhelming. Think of your balance sheet example as a picture of your business’ finances. Each picture shows the health of your company during a specific point in time. Evaluating the balance sheet gives you a chance to investigate your company’s financial status.
The picture also provides you an insight into the overall stability of your company which, in turn, helps you make guided and smart decisions. At its most basic level, this sheet summarizes for you the important financial information for a certain date and is, as often emphasized, an excellent indicator of your company’s liquidity and stability.
Since the document shows the company’s revenues, equity, and expenses, it’s more comprehensive than cash flow or a profit and loss statement. All the combined information found in this document helps you understand your company’s financials more effectively.
The balance sheet can also help you with any issues outside of your company’s internal operations. For instance, an investor or a lender may want to see it when you plan to apply for a business loan. Even suppliers might get interested in your business after seeing your balance sheet which indicates your business’s overall stability.