1. Balance Sheet

1. Balance Sheet
The balance sheet is a financial statement that shows the condition of your business as of a
fixed date. It is most effectively done at the end of every accounting period. The closing
balances from your general records will supply you with the information. Note: If you are
using accounting software, a balance sheet can be easily generated at the close of the
accounting period.
The balance sheet can be likened to a still photograph. It is the picture of your firm's
financial condition at a given moment and will show whether your financial position is
strong or weak. Examination of this statement will allow you to analyze your business and
implement timely modifications.
A balance sheet lists a business's assets, liabilities and net worth (or capital). The assets are
everything your business owns that has monetary value (cash, inventory, fixed assets, etc.).
Liabilities are the debts owed by the business to any of its creditors. The net worth (or
owner’s equity) represents the cumulative profits and losses of the company plus or minus
any equity deposits or withdrawals. The relationship between assets, liabilities and net
worth can be seen in the following well-known accounting formula:
Assets – Liabilities = Net Worth
If a business possesses more assets than it owes to its creditors (liabilities), then its net
worth will be positive. If the business owes more than it possesses, its net worth will be a
negative.
Example: See filled-in example balance sheet on page 127.