A balance sheet is a snapshot of your business' financial condition at any given time and is a good indicator of how stable your business is. As a small business owner, preparing a balance sheet will help you to keep track of your spending and earnings and in turn avoid financial problems. This article gives you an overview as to the mechanics of a balance sheet and the information and records you need to prepare one.
A balance sheet is one of the major financial statements used by a business owner or accountant. Also referred to as the statement of financial position, this document shows the value of a business in terms of its asset and its liabilities i.e everything the company owns and owes.
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:
Examples of assets include
|Machinery||Debtors (customers that owe you money)|
|Land and buildings|
Total liabilities (money owed to the business or money the business owes) include:
Examples of liabilities include
|Long term||Short Term|
|Mortgage||Creditors (suppliers you owe money to)|
|Loans||VAT (the VAT you owe to HMRC if you are VAT registered)|
|Salary||PAYE and NI (if you employ staff)|
Click on the download button below to access and use this balance sheet.
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.
Balance sheet.xlsx51.34 KB
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.
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, 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.
A profit and loss account is key to helping you with any decision making and also to the growth and success of your business. This article looks the importance of a proft and loss account and the records you need to ensure that you, or your accountant, can prepare one for your business.Read more
For many small business owners starting out, the idea of keeping business records can be daunting. But this essential task needn't be a headache. With some organisation, staying on top of your business income and expenditure will help you stay in control of your finances.Read more
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