Today we\u2019ll look at the balance sheet which, as the name suggests, should always be balanced. The balance sheet presents a snapshot of the company\u2019s finances at any point in time. The balance sheet reflects how much the company owns and how much it owes to creditors.<\/p>\n
Most businesses do the balance sheet regularly at the end of the year or quarter. However, there\u2019s no real strict period when it has to be done\u2014the only thing is that is has to be done at some point.<\/p>\n
As you can see by looking at\u00a0the Balance Sheet from our free ebook Small Business Finance 101<\/em><\/a>, there are three parts to a balance sheet:<\/p>\n Let\u2019s look at each of them in turn to see how they work.<\/p>\n The assets on a balance sheet are essentially the valuable things that a business owns.<\/p>\n These assets can be divided further into two sections:<\/p>\n Current assets<\/strong> are things such as cash or other liquid assets that can be converted into cash within a year\u2019s time frame.<\/p>\n For example, if you have a cleaning business with cash in the bank, investments, and supplies, those are all current assets. You can also include accounts receivables (unpaid invoices) as a current asset. These are listed on the balance sheet in order of liquidity<\/a>, the most liquid (cash) at the top.<\/p>\n Your fixed assets<\/strong>, or long-term assets, are things that have value to the business but cannot be converted into cash in a time frame of a year or less. This includes things such as manufacturing equipment, land, buildings, furniture and vehicles.<\/p>\n Liabilities represent the financial obligations that the business has. These are the amounts owed to creditors and others as of the date of the balance sheet. These liabilities can also be broken down into two sections:<\/p>\n Short-term liabilities<\/strong> are obligations that are payable within a year. These earn a particularly high amount of attention, as the business must assure it has sufficient liquidity to cover these when they are due. To continue with the cleaning business, your current liabilities may include:<\/p>\n Long-term liabilities<\/strong>, on the other hand, are generally in reference to a business\u2019s loans and other financial obligations that are not due within a year of the balance sheet date.<\/p>\n For example, let\u2019s say you have a long-term loan or mortgage with a principle balance of $50,000 and 120 monthly payments remaining. In the next 12 months (from the balance sheet date), you have $3,000 of principal payments due.<\/p>\n To report the $50,000 debt on the balance sheet:<\/p>\n\n
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Assets<\/h2>\n
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Liabilities<\/h2>\n
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