A balance sheet and an income statement will allow the business or company’s decision-makers the ability to create and generate informed decisions that will affect the future of the company. Before one can create the income statement, one will need to obtain the net income from the balance sheet.
A balance sheet is a document that contains a list of all the assets and liabilities in a business or company. Not only that, but the balance sheet will also include the overall value of the assets, the overall cost of the liabilities, and the total income of the business or company.
A well-made balance sheet can concisely and succinctly relay all the necessary information about the performance of a business or company. If you need a balance sheet reference when you are making one, feel free to use any of the balance sheet templates, balance sheet examples, and balance sheet samples on the list above.
Begin by choosing the type of balance sheet you will use to outline the performance of your business or company during a specific period. If you need to compare two balance sheets, you may opt to create a comparative balance sheet.
After you have determined the type of balance sheet you will use, you must write down all the assets either on the left or the upper portion of the balance sheet. The assets should include their associated numerical values written alongside them. Add all the numerical values of the assets at the bottom portion of this section.
When you have finished writing down the assets, you must write the liabilities on the bottom or right side of the balance sheet. These are the obligations and costs that you will use to subtract the total sum of the assets.
When you have finished writing down both the assets and the liabilities, you must create equity, which is the difference between the total assets and liabilities. (Total Assets – Total Liabilities = Bottom Line) Afterward, you must analyze the bottom line and create a conclusion and recommendation based on the analysis.
There are three types of balance sheets a person can create depending on the context or wants of the business or company. A comparative balance sheet is a type of document that compares two or more balance sheet data from two time periods to analyze a trend. The second type of balance sheet is a vertical balance sheet that splits the assets into the top part and liabilities and shareholders on the bottom part of the balance sheet. The last type of balance sheet is a horizontal balance sheet that places assets on the left side and liabilities and shareholders on the right side.
Each balance sheet has four elements that comprise the balance sheet’s contents. The first element is the assets, these are objects the business or company can convert to cash or liquidate. (see products, commodities, and services) The liabilities and the equity are the second and third elements of the balance sheet, which are the obligations and the difference between the asset and the liabilities. The final element of the balance sheet is called the bottom line which acts as the conclusory paragraph of the balance sheet.
A balance sheet allows the HO and the management to know the current state of affairs of the business through a financial lens. The data the balance sheet generates allows the HO and the management to create and brainstorm a strategy to ensure their profitability has an increasing trend.
A balance sheet is a document that will collate the necessary information and financial data of a specific business or organization within a specific time. A well-made balance sheet will inform the company heads about the trajectory of their business’s service or product.