Balance Sheet – A Beginners Guide

Balance Sheet EquationA Balance Sheet is an accounting report required by all companies registered at Companies House and is useful for self-employed to see how their business performs.

It allows you to see a snapshot of your business on a given date, normally month or year-end. It is also a useful tool for management to see the value of assets a business owns, including equipment, bank balance and what it owes at any given time. We have included a balance sheet example and details.

The report provides information that is useful when assessing the financial stability of a company. Financial ratios can be used to calculate the business’s financial position; these include liquidity ratios and gearing ratios. Banks and suppliers use them to work out if the can offer a loan, overdraft or credit facility.

How to prepare a Monthly Balance Sheet

All accounting software packages will include the Balance Sheet in their reporting section. It is therefore easy to print out a balance sheet on any given date.

If you are not using software, it is worth looking into as it can save both time and money. Start by taking out a free trial to see if it is suitable. Some of the best packages on offer are:

 

Balance Sheet - A Beginners GuideBalance Sheet - A Beginners Guide
If you are not using accounting software, then Excel is a good tool to design your own.

Balance Sheet Format

There are examples below, but it shows the following information:

Balance Sheet Heading

The heading includes the business name and date. The format of the date is: as at date. An example might show ABC Computers – Balance Sheet as at 30th June 2021.

AssetsFixed Assets, Current Assets, intangible assets, stock, cash, money owed from customers (accounts receivable ledger) and prepayments.

Liabilities – Debts, money owed to suppliers, taxation, pensions and accruals.

Equity – Shares and retained earnings from the Profit and Loss account.

Balance Sheet Template

We have a free Excel Template for you to download. It is not suitable for submitting to Companies House but will enable a small business to produce a report for their year-end. If you are a limited company, you will need your accountant to format the report as part of your accounts to submit to Companies House.

Formatting a Balance Sheet

The report is formatted vertically, showing the following:

Assets – Liabilities = Equity

The two sides of the equation must always balance.

Below is a typical balance sheet example; each link provides further details and how to account for them.

 Assets  
Fixed Assets1000 
Accumulated Depreciation100 
Total Fixed Assets900 
Current Assets  
Stock250 
Debtors150 
Bank1250 
Total Current Assets1650 
Total Assets 2550
Liabilities  
Creditors300 
Loan200 
Credit card75 
Total Liabilities 575
Net Assets 1975
Equity  
Capital200 
Retained Profit1775 
Total Equity 1975

Using the sample above, we can look at some transactions that may change only the balance sheet figures.

The business purchases a new computer for 400.00 from the bank account. The transaction will increase the fixed assets by 400.00 and reduce the bank by 400.00

Another example is the business pays 125.00 to the creditors. The double entry will be to reduce the bank by 125.00 and reduce the creditors by 125.00.

The sample would then look like this:

Assets  
Fixed Assets1400 
Accumulated Depreciation100 
Total Fixed Assets1300 
Current Assets  
Stock250 
Debtors150 
Bank725 
Total Current Assets1125 
Total Assets 2425
Liabilities  
Creditors175 
Loan200 
Credit card75 
Total Liabilities 450
Net Assets 1975
Equity  
Capital200 
Retained Profit1775 
Total Equity 1975

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 template.

Balance Sheet Example

Balance Sheet Example

The Balance Sheet example shows the following information.

The company owns 18,500 in Assets. The assets are made up of fixed and intangible assets, bank, stock and debtors.

The company is owed 5,500 of liabilities; this includes 3,000 from customers and 2,500 in a loan. It is financed by share capital and retained profits from the profit and loss account.

If you want to see more examples take a look at the Companies House website. All Limited companies have to submit a Balance Sheet each year and available to view. Most small companies will submit abbreviated accounts. For larger companies, they may even have the report on their website.

A the report is a financial snap shot of the business. It shows in one place how much the business owns (assets) and owes (liabilities).  The report  is used by business owners,  investors, creditors and shareholders.

A balance sheet can be prepare in several ways. The easiest way to prepare a balance sheet is to use an accounting software package, which will automatically produce the report from the reports list. If you are looking to produce one using a spreadsheet, we have a free template download.

The balance sheet is prepared by either a business owner, bookkeeper or accountant. If it is required by Comanies House, an accountant is the best person to prepare it and submit the accounts.