What is a balance sheet? | Free balance sheet example UK

How do I calculate the net value of my business?

The net value of a business is calculated by taking the total assets of a business (goods and resources owned by the business), less its total liabilities (debts of the business).

Total assets (things the business owns) include:

• fixed assets
• and current assets.

Examples of assets include:

Total liabilities (money owed to the business or money the business owes) include:

• short term liabilities
• and long term liabilities.

Examples of liabilities include:

What are current assets and current liabilities?

Current assets are amounts that a business can reasonably expect to convert to cash within one year. Examples of currents assets include:

• Cash and bank account balances
• Accounts receivable – customer invoices
• Stock – though slow moving stock may be difficult to turn to cash readily
• Prepaid expenses – costs that have been paid but good or services not yet received
• Interest receivable
• Other amounts receivable in the short term.

Current liabilities are a business’ debts or obligations that must be paid within one year. Essentially, these are amounts due to suppliers and other creditors, including:

• Accounts payable – supplier invoices
• Amounts payable on loans with a year
• Accrued expenses – costs that have been incurred but are yet to be invoiced for
• VAT and other taxes payable 
• Customer deposits – if a customer pays in full before completion of their order
• Interest payable.

Current liabilities are generally paid by liquidating current assets, for example by receiving payments from customers, but may also be settled through replacement by other liabilities such as short term loans.

Download: Balance sheet template

Want to see a balance sheet example? Click on the download button below to access and use our free balance sheet template.

This spreadsheet shows the amount of assets vs the amount of liabilities. Once asset and liability values are entered into the relevant cells in the spreadsheet, the graphs are automatically populated to visually show the difference between the assets and liabilities. 

How often are balance sheets prepared?

Balance sheets can be prepared as regularly as a business would like. The more frequently they are prepared the more up-to-date the business owner is on the financial position of his business.

Balance sheets are different to profit and loss accounts in that they are not prepared for a given period but are instead prepared at a certain date e.g a balance sheet at 31 December would show what the business is worth at that date.

When annual accounts are prepared by an accountant, they usually prepare a profit and loss account and a balance sheet as part of the year end procedures.

What is a balance sheet used for?

For a sole trader business, the main user of the balance sheet will be the small business owner. He/she will use it to gain an idea of the liquidity of the business (the amount of cash a business has on hand or how quickly it can generate cash) and the position of the business overall – i.e how well the business is doing. 

Where the owner seeks additional finance they may use asset financing, say from a bank for example, the bank are likely to want to review the balance sheet of the business to assess whether the business is a good or risky investment. 

For a larger company, a balance sheet is used by investors to help them decide whether they want to invest. It also used to value the share price.