The balance sheet of a small business provides insight into its financial statement and overall value. A company’s financial records, including assets, liabilities, and owner’s equity, will help the owner keep track of the company’s finances.
As crucial accounting tools for small businesses, balance sheets show a company’s financial balances and may indicate potential growth or decline. Let’s first learn how to make a small business balance sheet.
Steps to Creating a Balance Sheet
If you know how to prepare a balance sheet, you can spot potential errors before they damage your business irreversibly. Making a small business balance sheet is easy if you follow these steps.
Specify the Reporting Period
A balance sheet shows how much money enters and leaves a business on a given day. Reporting dates are typically the last day of the reporting period.
Reports are usually issued by most firms quarterly. It is typically the last day of the fourth quarter that the reporting date is set. The first thing you need to do is create two columns on your paper.
Identify Your Assets
Assets are the resources you use to run your business and must be classified into two categories. Your small business’s assets will be easier to understand if you separate them into discrete line items.
You need to list assets on your balance sheet in two categories: fixed assets and movable assets:
- Current Assets
- Examples: Cash and cash equivalents, inventories, receivables, etc.
- Non-current Assets
- Examples: Land, buildings, machinery, etc.
Determine Your Liabilities
On the balance sheet, list the amounts owed by your business under the liabilities section. Liabilities must be identified in the same way as assets. According to their classification, they fall into the following categories:
- Current Liabilities
- Examples: accounts payable, income taxes payable, Bills payable, interest payable, etc.
- Non-Current Liabilities
- Examples: long-term notes payable, Bonds payable, capital leases payable, mortgages payable, etc.
Determine Shareholders’ Equity
Shareholder equity refers to the capital raised by selling the firm’s shares. Small firms typically hold their shares privately, which makes it easy to calculate shareholder equity. Large corporations, however, have publicly traded shares, making the calculation more difficult.
The balance sheet includes the following items:
- Retained earnings
- Treasury stock
- Preferred stock
- Common stock
Add Total Shareholder Equity and Total Liability to Compare to Assets
It would be best to compare the total assets to the total liabilities plus equity to ensure the balance sheet is balanced. The formula is Total Liabilities + Total Shareholder’s Equity = Total Assets.
Due to the nature of the issue, both sides of the balance sheet are likely not balanced at once; therefore, identifying and rectifying the issue will take time.
How Can EasyBooks Help to create your Balance Sheet?
Small businesses can use Easy Book to manage their finances. Making small businesses look effortless takes on a difficult task. Business owners and sole proprietors can both benefit from the app.
In EasyBook, you can generate profit and loss statements and balance sheets to keep track of your finances. Easy Book can help you reduce paperwork. A highly simplified report is produced online, eliminating confusion.
The app allows you to do so and keeps track of and monitors your best customers to ensure that you provide them with high levels of value.
You must prepare a perfect balance sheet for your small business to ensure smooth cash flow. The downside of doing it by hand is that it can lead to human errors, so you should use an app to help you do it.
Please start with the EasyBooks free trial to see how easy it is to build a balance sheet.