The balance sheet
A balance sheet lists the assets, liabilities and equity of your business at a
specific point in time. It is used to calculate a company’s net worth.
NOTE: The balance sheet must balance. The basic equation is:
Total assets = liabilities + equity
Subtracting liabilities from assets will then show the net worth of the business.
How to write a balance sheet
The top section of the balance sheet should list your business’s assets in
order of liquidity (from most to least liquid).
Total assets
Your business’s total assets are the sum of current and long-term assets.
Current assets include:
 Cash or its equivalent
 Assets that will be used by the business in a year or less
Long or fixed term assets include:
 Any assets that are durable
 Assets that will last more than one year
Current assets
Cash
Accounts receivable
Inventory
Long-term or fixed assets
Capital and plant
Investment
Miscellaneous assets
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Cash on hand when books are closed at the
end of the fiscal year. This includes all cash,
savings, cheques, and short-term investment
accounts.
The total amount of income received/derived
from credit accounts. This is logged into the
books at the close of the fiscal year.
Related to the cost of goods. Inventory refers
to the material used to manufacture a product
not yet sold.
The book value of all owned capital
equipment and property, less depreciation.
Any investments held by the company that
can’t be converted to cash in under one year.
These kinds of investments tend to take time
to accumulate.
All other long-term assets that do not fall into
the categories listed above.
Total liabilities
After listing your business’s assets, you need to account for your liabilities.
Like assets, these are classified as current or long term. Debts that are due in
one year or less are current liabilities. Long-term liabilities are due in more
than one year.
Current liabilities
Accounts payable
Accrued liabilities
Taxes
Long-term liabilities
Bonds payable
Mortgage payable
Loans payable
All expenses incurred by the business. This includes
purchases from regular creditors on an open
account that are due and payable.
All expenses incurred by the business that are
required for operation, but haven’t been paid at the
time the books are closed. These tend to include the
company’s overheads and salaries.
Payments still due and payable at the time the
books are closed.
The total of all bonds that are due and payable over
a period exceeding one year.
Loans taken out for the purchase of real estate.
These are repaid over a long-term period. The
mortgage payable is the amount still due at the
close of each fiscal year.
The amounts still owed on any long-term debts that
will not be repaid over the course of the current
fiscal year
Calculating equity
Owner’s equity is the difference between total assets and total liabilities. This
means it can only be calculated once liabilities have been listed. Investors
evaluate businesses based on the amount of equity the owner has in the
company. It often determines the amount of capital the investor feels they can
safely invest in the company.
Remember, the calculation is total assets = liabilities + equity
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