Main Components of Balance Sheets

A balance sheet is a financial statement that reflects assets, liabilities and owners’ equity. Get a free balance sheet template, example, and guide.

A good balance sheet can make a business owner get information on the financial position of the venture. Can the business improve on what it has? Is the business in a position to handle financial expenses with its day to day running? Should a business make bold steps of growing cash reserves? Balance sheets together with income statements provide information needed by lending institutions that is vital in determining the money to lend. The following information is contained in this book:

  • Information on assets. These are divided into current and long-term assets.  Current assets are those that can easily be converted into cash.  They include money in the bank and others. Cash at hand means money that is in liquid form, ready to be used to meet a purchase or expense. Fixed assets are resources such as buildings and land. Vehicles used in running the business are also placed in this category. Land is a fixed asset that always appreciates in value. It never loses its value at any given time. Buildings depreciate in value over a period of time. The types of fixed assets will vary from one business to another, but in virtually all businesses you will find office equipment and machinery. These include includes equipment used in the office such as photocopiers and printers. Vehicles also fall under fixed assets.
  • Information on liabilities: These in most cases include money owed to creditors and loans that need to be serviced. The loans are either long-term or short-term. When lending institutions offer one the chance to borrow more they always look at the amount that is owed to other similar institutions. Those businesses that have huge loans to service are always given a wide berth especially if their credit history is not favorable. The expenses incurred daily in the running of the business are also placed in this category. Thus one can also determine the expenses incurred in the process of running the business by simply looking at the balance sheet.

After this is taken into consideration, both sides of the balance sheet are worked separately then the difference is obtained. The difference obtained in this case is likely to show the net worth of a business after a certain period of time usually called a financial year. This therefore shows that it is possible to know the net worth of a business by looking at the balance sheet.

Balance Sheet Samples

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