Balance Sheet

A balance sheet is generally prepared at the end of a financial year and summaries assets and liabilities (what a company owns and what it owes) at a point in time and can be compared to the previous period.

The statement also shows the equity in the business in the form of shareholders funds which is basically the accumulation of profits (or losses) from the profit and loss account.

It is part of the accounting and bookkeeping set that also includes a P&L and cash flow forecast and will be included in financial reports sometimes with ratios.

Analysis

The balance sheet shows the health of a business at the date it's constructed and any ratio analysis undertaken will show gearing of debt and equity and other ratios can be used such as current assets ratio (or quick assets). The balance sheet must "balance" in that both sides add up to the same amount.

Example Balance Sheet

Here's an example and format of a balance sheet that shows the standard headings and the notes for further analysis. The template is the same whether you are a sole trader or limited company and any questions should be put to your accountant. It is always at a date in time showing a snap shot at that date and not a cumulative value such as in the profit and loss statement where sales are added for the period. So for example assets are all the assets you have at a point in time.

NoteHeadingvalue
1:Assets 
2:Current Assets4,000
3:Fixed Assets6,000
4:Total Assets10,000
5:Short Term Liabilities5,000
6:Long Term Liabilities3,000
7:Total Liabilities8,000
8:Working Capital2,000
9:Shareholders Funds2,000

Notes to the Balance Sheet

Here are notes for the above P&L