Financial Statements 101: How to Read and Use Your Balance Sheet

balance sheet

This asset section is broken into current assets and non-current assets, and each of these categories is broken into more specific accounts. A brief review of Apple’s assets shows that their cash on hand decreased, yet their non-current assets increased. When analyzed over time or comparatively against competing companies, managers can better understand ways to improve the financial health of a company. Shareholder equity is the money attributable to the owners of a business or its shareholders. It is also known as net assets since it is equivalent to the total assets of a company minus its liabilities or the debt it owes to non-shareholders.

A is a comprehensive financial statement that gives a snapshot of a company’s financial standing at a particular moment. A balance sheet covers a company’s assets as defined by its liabilities and shareholder equity. The left side of the balance sheet outlines all of a company’s assets.

Calculate shareholders’ equity.

This statement is required to analyze the financial status information for several consecutive periods. Generally, investors and creditors look at the balance sheet of the company to understand how effectively a company will use its resources and how much it can give in return. Though the balance sheet can be prepared at any time, it is mostly prepared at the end of the accounting period. In order to get a more accurate understanding of the company, business owners and investors should review other financial statements, such as the income statement and cash flow statement. In order to get a complete understanding of the company, business owners and investors should review other financial statements, such as the income statement and cash flow statement.

  • If splitting your payment into 2 transactions, a minimum payment of $350 is required for the first transaction.
  • Many of these ratios are used by creditors and lenders to determine whether they should extend credit to a business, or perhaps withdraw existing credit.
  • Below liabilities on the balance sheet is equity, or the amount owed to the owners of the company.
  • It is a snapshot at a single point in time of the company’s accounts—covering its assets, liabilities, and shareholders’ equity.

Using financial ratios in analyzing a balance sheet, like the debt-to-equity ratio, can produce a good sense of the financial condition of the company and its operational efficiency. This may include accounts payables, rent and utility payments, current debts or notes payables, current portion of long-term debt, and other accrued expenses. For instance, if a company takes out a ten-year, $8,000 loan from a bank, the assets of the company will increase by $8,000. Its liabilities will also increase by $8,000, balancing the two sides of the accounting equation. To complete your balance sheet template you’ll need to add in details about the debts and liabilities your company owes. Paid-in capital represents the initial investment amount paid by shareholders for their ownership interest.

Why do we need a balance sheet?

Reports are usually created on an ongoing basis, usually on a quarterly frequency. Balance sheets are typically used to track earnings and spending but can also show the profitability of a business to those interested in buying shares. Make a copy of this balance sheet example and fill in your business details to create your own balance sheet in just a few simple steps. Read below for explanations of each category on the example balance sheet and download your balance sheet template. Companies that generate a lot of cash are often doing a good job satisfying customers and getting paid. While too much cash can be worrisome, too little can raise a lot of red flags.

balance sheet

For the liabilities side, the accounts are organized from short- to long-term borrowings and other obligations. While an asset is something a company owns, a liability is something it owes. Liabilities are financial and legal obligations to pay an amount of money to a debtor, which is why they’re typically tallied as negatives (-) in a balance sheet.

Add Total Liabilities to Total Shareholders’ Equity and Compare to Assets

With liabilities, this is obvious—you owe loans to a bank, or repayment of bonds to holders of debt. Liabilities are listed at the top of the Accounting & Financial Planning Services for Attorneys and Law Firms because, in case of bankruptcy, they are paid back first before any other funds are given out. In order for the balance sheet to balance, total assets on one side have to equal total liabilities plus shareholders’ equity on the other side. Balance sheets, like all financial statements, will have minor differences between organizations and industries.

A company’s balance sheet, also known as a “statement of financial position,” reveals the firm’s assets, liabilities, and owners’ equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company’s financial statements. This balance sheet also reports Apple’s liabilities and equity, each with its own section in the lower half of the report. The liabilities section is broken out similarly as the assets section, with current liabilities and non-current liabilities reporting balances by account. The total shareholder’s equity section reports common stock value, retained earnings, and accumulated other comprehensive income.


However, some companies require little to no cash to operate, choosing instead to invest that cash back into the business to enhance their future profit potential. We also have a balance sheet template you can download and use right now. It shows a basic set of line items that a seller of goods is likely to use. A seller of services might not use the inventories line item in its balance sheet.

  • It is important to note that a balance sheet is just a snapshot of the company’s financial position at a single point in time.
  • On the other hand, long-term liabilities are long-term debts like interest and bonds, pension funds and deferred tax liability.
  • The cash flow statement displays the change in cash per period, as well as the beginning and ending balance of cash.
  • The balance sheet of a company will look like the image given below.
  • Business owners use these financial ratios to assess the profitability, solvency, liquidity, and turnover of a company and establish ways to improve the financial health of the company.
  • The balance sheet only reports the financial position of a company at a specific point in time.

Below is an example of a balance sheet of Tesla for 2021 taken from the U.S. Share capital is the value of what investors have invested in the company. Current liabilities refer to the liabilities of the company that are due or must be paid within one year. These formulas tell investors whether or not they will get a return on the money they invest in your company. With this information in mind, let’s go over the step-by-step process of creating a balance sheet. You’ll get bank details for the US, UK, euro area, Poland, Australia and New Zealand, to receive fee-free payments from these regions.

How can you make a balance sheet?

In the left-side column, create a section for assets, liabilities, and equity. All the numbers included in the sheet should match with the worksheet’s consolidated trial balances. After including the numbers from your worksheet, review the consolidated balance sheet. The balance sheet is used to assess the financial health of a company.

balance sheet

You can also compare your latest balance sheet to previous ones to examine how your finances have changed over time. Liabilities are presented as line items, subtotaled, and totaled on the balance sheet. It’s important to note that this balance sheet example is formatted according to International Financial Reporting Standards (IFRS), which companies outside the United States follow. If this balance sheet were from a US company, it would adhere to Generally Accepted Accounting Principles (GAAP).