What is a Balance Sheet?
A Balance Sheet is an accounting report required by all companies registered at Companies House. It is also a useful tool for management to see the amount of assets a business owns including equipment, bank balance and how much is owed at any given time.
The report provides information that is useful when assessing the financial stability of a company. There a number of financial ratios that can be used to asses the businesses financial position, these include liquidity ratios and gearing ratios. These ratios are used by banks and suppliers to work out if the can offer a loan, overdraft or credit facility
A balance sheet shows the following information:
- Assets - Fixed Assets, Current Assets, intangible assets, stock, cash and money owed from customers
- Liabilities - Debts, money owed to suppliers, taxation, pensions
- Equity - Shares and retained earnings from the Profit and loss account.
Formatting a balance sheet
The report is normally formatted vertical showing the following:
Assets - Liabilities = Equity
The two sides of the equation must always balance.
Below is a typical example of a balance sheet, each link provides further details and how to account for them.
Assets | ||
| Fixed Assets | 1000 | |
| Accumulated Depreciation | 100 | |
| Total Fixed Assets | 900 | |
Current Assets | ||
| Stock | 2500 | |
| Debtors | 150 | |
| Bank | 1250 | |
| Total Current Assets | 1650 | |
| Total Assets | 2550 | |
Liabilites | ||
| Creditors | 300 | |
| Loan | 200 | |
| Credit card | 75 | |
| Total Liabilities | 575 | |
| Net Assets | 1975 | |
Equity | ||
| Capital | 200 | |
| Retained Profit | 1775 | |
| Total Equity | 1975 |
Creating a Balance sheet
Any business which runs accounting software will have the ability to create the report within the software. If you are running a manual system then we have included a free excel balance sheet template.
Balance Sheet Example
The sample report shows the following information.
The company owns £18500 in Assets. The company is owed £5500 of liabilities this includes £3000 from customers and £2500 in a loan. This is financed by share capital and retained profits from the profit and loss account.
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