What is a balance sheet?
A balance sheet is an important document that shows the assets, liabilities and capital of an organisation at a given point in time. This sheet provides investors and stakeholders with a simple overview of what your company owns and owes, and the amount you and other shareholders have invested.
That’s the purpose of a balance sheet, and implicit in that is the fact that without balance sheets there is no easy to read, structured supply of information that can be used. Those with a relevant interest in the company, such as business owners, potential new partners or investors, accountants and directors, can use balance sheets to swiftly and accurately assess the financial health of the company. A business usually needs a balance sheet when it’s looking for investment, applying for a loan or a grant, or submitting tax returns.
What does a balance sheet include?
Assets – usually cash, funds in the company bank account, and equipment of value, such as computer hardware and office furniture. Basically, things the company owns.
Liabilities – money owed by the business. So, unpaid invoices, outstanding loans, building rent obligations, employees’ salaries. Basically, what the company owes.
Owners’ or Stockholders’ Equity – this is the owners’ claim (or the stockholder’s claim if the business is not solely owned by an individual) on the assets of the business. This might be investment into the company. For example, if the owner has invested £30,000 of his or her own money to start the business, this remains the owners’ equity.
This balance sheet template provides the basic layout and structure you’ll need to create a balance sheet and start organising the finances of your company.