Starting A Small Business Series-Profit and Loss Statements

Last week we talked about the Profit and Loss Statement.

Today we will take a look at the Balance Sheet. So what is the balance sheet? It shows you how much your company is worth. You start off with your assets on one side with your liabilities and net worth on the other.

On the asset side your first listing is your current assets. These are assets that you could turn to cash very quickly. This obviously includes cash in the bank, your petty cash, temporary investments such as money market accounts, inventory, accounts receivable (money you are owed), supplies, and prepaid insurance.

Next is your investment which is anything long term such as stocks, bonds, mutual funds, etc.

Following up after investments comes your plant and equipment. This can include land, your building, and manufacturing equipment with your allocated depreciation taken out. After your plant and equipment come intangible assets. This could include goodwill and trade names which can be hard to calculate. Last would come to misc. assets.

Now you total up all of your assets and move to the next column.

The next section you work on is your liabilities and we start of with current liabilities. This includes Notes payable, wages payable, interest payable, taxes payable, warranty liability, and unearned revenue. Current liabilities basically cover anything that will be due by the end of the year.

Next on your list will be your long term liabilities which are anything that will be due past this year. This would include bonds payable and notes payable such as a mortgage on your business or a business vehicle.

You then add your current liabilities and long term liabilities and get a total.

Finally you have your owner’s equity. If it is just you then that is pretty simple. If you have stock you will have your stock and retained earnings.

Finally you add your liabilities and equity together. The number you get should be equal to the number you have for your assets. If they do not match something is wrong go back and figure out what is wrong. Once you are done you know how much you own, how much you owe and how much equity you have in your business.

To see what a balance sheet should look like you can go to Accounting Coach.

Next week we will move to the Cash Flow Statement.