What is the balance sheet? The “Balance Sheet” is a financial report for your business as of a specific date. It includes your companies Assets, Liabilities, and Equity as of a specific date in time (could be as of today). A “Balance Sheet” is also called a “Statement of Financial Position” because it provides a snapshot of your assets and liabilities – and therefore net worth, at a single point in time (unlike other financial statements, such as profit and loss reports, which provide information over a period of time).
The basic accounting formula is: Assets less Liabilities = Equity or “Net Worth”
A “Balance Sheet” can also be prepared for personal use. This financial report is for you personally as of a specific date in time, it is commonly used to determine the financial “Net Worth” personally. It also includes your personal Assets, Liabilities, and Equity.
Assets include current assets, fixed assets, and intangible assets.
Current assets are assets that are planned to be kept for a short period of time, often less than 12 months. They include:
- Cash at the bank
- Short-term investments
Fixed Assets, also called non-current or capital assets, are assets that are planned to be kept, including:
- Building and improvements
- Office Equipment
Intangible assets are assets you can’t touch, including:
- Intellectual Property
- Trademarks and Patents
Liabilities are usually separated into two categories, short term and long term liabilities.
Short-term liabilities are usually those items you expect to pay for or could be expected to pay within 1 year of the balance sheet date. They include:
- Short-term loans
- Creditors with less than 12 months to pay-off
Long-term liabilities are debts not payable within 1 year of the balance sheet date. They include:
- Long-term loans
- Secured bills
Equity = Assets less Liabilities. Deduct the liabilities from the assets and you have the equity.