Balance Sheet Resource PDF

A ba lance sheet is,a repo rt that gives you a snapshot o;f the financia1Ihea lth of you r bus'iness. Unli ke 01P-rofit and lo ss statement which shows you ·what youfve earned arid 1 spent in a given t ime period, 01ba lance sheet shows the whole picture of your...

A ba lance sheet is,a repo rt that gives you a snapshot o;f the financia1Ihea lth of you r bus'iness. Unli ke 01P-rofit and lo ss statement which shows you ·what youfve earned arid 1 spent in a given t ime period, 01ba lance sheet shows the whole picture of your finances. A balance sheet lists you r tota l assets (what you o·wn) total liabi lities (what you owe othe rs)~ and equity (what pa rt of the business you personally 0 wn) at any point in time. 1 Why are balance sheets important? R.ead ing a bala1nce sheet can help you answe r overarching financia l] questions like: How much liquid assets does my business have? ln other words, if I needed $.X rig ht now. do I have a1c:cess to it? Is my level] of debt susta inable given my cunent operations? How much is my business worth? A ba Ila nee sheet can also help you answer cash flow questions like: How much money do others owe me t hat wi ll be paid in t he, near future? Ho·w much money do I owe others that needs to be pa id in the near fut ure? Do I have the cash ava illable to cove r these obligations? How much money is ava1ilab le after paying my cu rre nt I iabilities to put back into my business (aka what's my worl,d ng ca p ita I)? Fina Ily, a ba1la1nce sheet is often used by lenders and investo rs to see:: The f i na ncia I risk of investing in your business. If your company has more I iabilitie·s than equity, it a ppe,ars riskier. If the business is becom ing mo re or less solvent ove r time. Is the debt-to -asset ratio increasing or decreasing? How much money is pa id out to sha1reholders and owners or reinvested in the business? See? The profit ,& loss report isn't the only co oil kid on the b lock! A ba k.ln ce sheet h as th ee ma in secti ons: Asset s Uabil ities Eq ity -A _NC E SHEET As ' - 'i 3 1. :2 1'81 TOT ' ·.55 $3,800.00 Olhe!"C saoo.oo TC!lal Cu $64,305.55 F tx@d ,A.SS, $1Cl.OOO.OO TOTAi!.. liiSSETS 17,41,305.SS $24,744.00 Equity SG.511 ,SS TOll'.A!!.. ILlAB L es AND iQUlli"t'' $7,4.3Qfi.SS A ' the ve ry b ottom o f yo u r ba la n ce sh eet , you 'll see ,a li ne t hat s,o ys To ta l Liab ilit ies ,a nd Equ ity. W h ich. yo u may not ice. is the same ,as yo r To t,a l Assets. That's beca u se ,a bo la nee sheet needs to... ba lla n ce l A lli o f th e money in yo u r bus iness n eeds t o be accounted fo r t h ro u gh t he b□ sic acco unt in g equat ion : Assets = Li o1bi hrt ies + Eq uity U n llike ,a profit & loss report , wh ich shows yo r net inc01me o t he fin a I line. the last lin e of t he ba lonce sheet shows t h a t yo ur acco unt ing i s in deed. b □ lanced. If you add u p yo ur liab ilit ies and equ ity and t hey don't eq u a I your totia l ,a ssets. t h at means there's a se r ious p rob lem in y ou acoo untin g t h□ t nee ds to be ,add ressed. Because a Iba lance sh eet doesn't ,o dd up or subtract yo r financia l activities ove r t ime. it rea lly is a sn apshot of your cu rent fin□ ncila l stand ing1. (That's w hy a b alances eet is a lso called a st a te ment o f f inanci a I posi t ion. ) Th in o f it as a really detailled li st off eve yt h ing1 t hat yo u own a n d eve ryth in g yo u owe. rig ht now. Current Assets Theire are t hree ma i n types of ,c ur rent assets : Cash Inve n t or ies Acco unts receivab l1e Cas.h i s. you g1uessed it. t he money you h ave i n you 1r ba nk account. The ba lance that you have in youir ban. ,account o n the date of the b a llance sheet is wha t ap pears on the bo l a n ee sheet. lnve ntoriries a ire ite ms that yo u have ova i Iabl e t o se llI. If it 's sit t i n,g on the she lf in yo ur boutiq ue. il t 's g o i n,g to a pp ear as a in asset on yo r b alance sheet. Depe n d i ng on the accounting method yo use. raw mote ria l s may o l so appea r os an ilnve ntory asset. Ac,c ounts r-,e c,e m,able i s mo ney that ils owed to you firo m your custome rs. If you ilnvoice someone f or $1.000 and t hey hove 30 days to poy yo u. tha t $ 7. 000 a pp ears on you bo l a n ee sheet as ,accounts rece il vabl e u ntil l t he i 111voi ce is p a il d. O t her types of cur rent asset s are : Non-current assets Afte ir t he cune nt ,assets sectilon. you' ll see your non - current assets. On a ba lonoe sheet. non - c rire111t ,a ssets appea ir under t he fo llowing headers: In vestme nts (these a ire long1- term investmen t s tha t oannot be converted to cas h i n t he next 1.2 months) Fixed assets (for ex,a mp le. p rope rty, equ ipment. ve h icles, mac h inery, a111d l easeho ld improve me 111t s) Intang i b l e assets (for exo mp le. tira demairks. patents. domai n name. brand name, etc.) Ot her asset s Whe111 loo ki ng1at youir bo l a nee sheet it's impoirto nt t o pay atte111t i on to mo re than just you ir tot ,a l ,assets. Y,ou :shou ld a lso llook at how m uch o f your asset s are current ve rsus non - c ne111t. Foir examp le. if yo u have $50.000 in tota l assets. t at m i ght fee l like a lot. But if o n ly $5.000 i s i n cur rent asset s. t lha t meons tha t your b us iness does n't have a lot of ca sh read i lly ava illab le. Cu rrent. I iabirties A t t h e t op of t he lio b i lit i es section o ir,e you r ,c u r,e n t I ia b i I ities_ Comm on c u nent I i a b EI it-es i n c lu de: Acoou n ts poyabl e S h ort- te m 1loans C redi t ,c ord b a lances Ot!h e p ayables Acc--01W1 rirts payabEe i s money t h ot you owe othe rs_ IJ..Jsua I ly. t h m s is mom ey t h o t you owe fo r goods or se rv i c,es t h at you ·ve r e e i ved b u t not a i d f or yet _ If you wor k w i t h vendors who g i ve you a cer t a i n numb e r o f days t o pay you ir in voice. t h en you h ove ,a ccou n t s paya b I e_ Short- tern, ~oans a re m oans t hat yo u expect t o pay boc k ;vit hi n o ne yea r _ A common e:xa m p ie i s a b usm n es..s Ii e o f cr,e d rt. You bo rrow t h a t money \¥h e n you need it o rn d t he n p ay i t b ack \iv it hi n a f e ;v month s_ T he n t her e a re credit cards_ Because credjt card spend is supposed to be po id bac ~ qu i ckl y. t hey a r,e amo n g t he m ,ost cu r ent of you r l iabi l it i es_ E:xa m p ies of o t he r pay,a bl es □ r e: Sa les t ax: payabl~ Payrol l taxes p ayab le In come taxes pay □ b le n.on19 -term licbil it ies Next. you·11see you r long - t erm l ia b il it ies. These a re debts t hat ,ca nn ot be p a i d in f ul l i n t h e n ext 2 months. Exam p ies o f lo n 9 term Ii a b i Irries a re: 1- Busi ness loa ns w it h terms longe r t h an 12 months Tax l ia b i lit ies (for example. if you·re on an IRS paymen t p lan for taxes owed from p re vio u s yea rs) Mort gage o 11 ,a b ui Id i n g o r p rop er t y Just li ke it's i mpo rt ant to d iffere ntiate betwee n cu rrent a nd n o n- cu rre n t assets. ifs i mpo rt ant to know t he amou nt of you r ,c une nt liabi lities and long- t erm li,a bilit i es_ "(;ou r cu rrent liabi lit i es ,a r,e yo u r immedia t e concern as t hi s debt needs to be p a i d in t h e next l 2 mont ns. You r b usi ness n eeds t o make enoug h money to cover t nese payment s whi Ie a lso contin u ing to ma ke payments on your Ion g -t ,e rm Iia b i Iit i,es. Knowing yo u r tota l long-t erm liabi lit i es ca n a lso help you p la n you r f utu re payme nts and u n d e rst and h ow lo n g you·11 be ma ki ng1payments for. Equity r lE,:-!![y' 0111? 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