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Financial Statements: The Balance Sheet – Understanding It

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The two most core financial reports are the balance sheet and the income statement. Understanding each report, what it means and how to utilize it, is fundamental to the financials of your business.

The balance sheet, in its simplist form, is a snapshot or picture of the financial data of your business at any point in time. You can look at your balance sheet as of today and it should tell you about your assets, your liabilities and the equity of your company. It is an overall summary of all of those items. If the financial data is tracked and captured correctly, your balance sheet is a vital piece of your decision making process.
Here are some of the items you will see:

With regards to assets, you will know how much cash you have available, how much inventory you have available, what assets you own and who owes you money, to name a few.

With regards to liabilities, you will know who you owe money to in the form of vendors and accounts payable, loans that you may have either to a bank, a 3rd party or the owners of the business. It will also tell you what taxes you owe or how much payroll is coming due.
On the equity side, you will know the accumulation of profits or losses, the current year net income or loss and the funds invested or withdrawn from the company. If you are a corporation and have stock, it will tell you how much it was issued for.
We have provided an interactive balance sheet for you to browse through and understand the main items that will exist on a balance sheet. Each account can be clicked on and is described in more detail. We also have provided video tutorials on some of the main balance sheet items, describing them in more detail.

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