How to Create a Balance Sheet (With Advice and Examples)

Balance sheets are financial statements that explain a company's assets, liabilities, and equity. These documents provide insight into a business's financial health, including its debt, net worth, and spending habits. Understanding how to create and maintain a balance sheet is an important skill in the accounting and financial fields. In this article, we explain how to create a balance sheet, discuss its key components, review their importance, discover prospective career opportunities dealing with balance sheets, and provide examples you can modify for use.

How to create a balance sheet

Learning how to create a balance sheet involves the simple equation, liabilities plus equity equals assets. A balance sheet is the mechanism used to track these three factors. Here is a list of steps you can take to create organized and accurate balance sheets:

1. Choose the time period and reporting date

The first step involves determining the period you plan to record. A common approach is using a quarterly reporting schedule. Some companies may use a monthly schedule for balance sheet maintenance to make it easier to calculate a quarterly analysis. A typical quarterly calendar is:

• January 1 through March 31: Q1

• April 1 through June 30: Q2

• July 1 through September 30: Q3

• October 1 through December 31: Q4

The reporting date is typically the last day of the reporting period. For instance, if you use the schedule above, your reporting dates are:

• March 31: Q1

• June 30 Q2

• September 30: Q3

• December 31: Q4

2. Identify and total the assets

A balance sheet looks like a chart, featuring the assets on the left-hand column. Title it 'assets' and create a 'current assets sub column'. Itemize the assets with the title of the asset on the left and the monetary value on the right. Take the sum of the current assets and list it as a subtotal on the sheet.

Repeat this process with noncurrent assets beneath the current assets. Itemize each asset and list it next to its cash value. Take the sum of the noncurrent asset value and list it as a subtotal. Finally, combine both subtotals and list them at the bottom of the column in a section called 'total assets'.

3. Identify and total the liabilities

The liabilities column is direct to the right of the assets column. Following a similar format, create subsections for both current and noncurrent liabilities. Itemize each of them with the liability title left of the cash value. Subtotal both types of liabilities, labelling them in the same way as the assets section. Combine the two liability subtotals and list them in a 'total liabilities' section at the bottom of the righthand column.

4. Determine equity

Equity is the owner's or shareholder's stake in a company. Calculate any equity value and add it together with shareholder earnings. The total goes on your balance sheet under the title of either 'total liabilities and owner's equity', or 'total liabilities and stockholders' equity'.

5. Combine all three values

Once you create the balance sheet, organizing the liabilities, assets, and equity, the final step is to total the value. This is the balancing aspect of the sheet. The sum of total liabilities and equity balances to equal the total asset value. At this point, you can not any data inconsistencies. Balance sheets provide a steady stream of information, tracking all financial aspects of the company. Provided you complete these reports regularly, you can monitor the business' finances over time.

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3 balance sheet components

Balance sheets are a business's fundamental financial document, updated constantly to reflect the current economic state of the company. To provide a full report on the balance sheet, it consists of these three items:

1. Assets

Assets represent anything the business owns, with individual items falling into two categories: current assets and noncurrent assets. Current assets are anything that you can convert into cash within one year's time. These are usually tangible assets, such as money in bank accounts, inventory, stocks or bonds, and other short-term investments. This type of asset is liquid, referring to the speed at which you can realize the asset in cash value.

Noncurrent assets require more time to liquidate, meaning you classify an asset as noncurrent if you can't convert it to cash within one year. Examples of noncurrent assets are real property, company machinery, and intangible assets such as patents or other intellectual property. The balance sheet includes both types of assets, where the sum of the two results in the total company assets.

2. Liabilities

Liabilities are any debts the company owes to an outside party. Though these are the polar opposite of assets, liabilities also have two categories: current and noncurrent. Current liabilities are those due within a year's time. Examples include payroll, loans payable within this period, and any accounts payable to suppliers that the company purchased using credit. The liability title refers to the rate at which the company's debts come due.

Noncurrent liabilities come due beyond a year's time. Less common than short-term liabilities, most involve long-term loans. Mortgages on real property and loans on equipment count as noncurrent. Another example is company-issued bonds, where repayment extends beyond one year. The balance sheet displays both liability types, the sum of which is the total company debt.

3. Equity

The final balance sheet component, equity is the total sum of money the company owns when you create the balance sheet. If the business is a sole partnership, you call it owner's equity. On a corporate balance sheet, you write it as stockholder's equity. Among the different types of equity are capital investments from owners, stock both public and private and any profits accrued since the company began business operations.

Related: How to Use a Template for Balance Sheets (With an Example)

Importance of balance sheets

Learning how to create balance sheet documents is important because this statement is required for a wide range of purposes. It reports the financial well-being of the company to management, stakeholders, and government organizations. Accuracy is paramount since balance sheets are subject to review by tax agencies and outside parties with a vested interest in the company.

Balance sheets have an important role both in daily business operations and in a broader perspective. You can check a balance sheet to view revenue for a specific day. When you combine it with previous balance sheets, you can see emerging trends. A balance sheet tracks the business pulse and is useful everywhere from financial strategy to payroll accounting.

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3 careers involving balance sheets

Many careers involve balance sheets, ranging from business management to finance. The following three positions rely heavily on creating and understanding balance sheets:

1. Accountant

National average salary: $54,004 per year

Primary duties: An accountant creates, maintains, and analyzes financial documents. These professionals deal directly with balance sheets, both writing and auditing them. Accountants can work independently, as an in-house accountant for a mid-sized or large business, or work in an accounting firm. In each environment, the accountant performs routine financial tasks with a focus on record-keeping, timeliness, and accuracy.

2. General manager

National average salary: $55,456 per year

Primary duties: General managers handle the daily business operations of either a whole company or a specific department. Managers use balance sheets to track spending and revenue, identify issues, and create strategies for improvement. General managers deal directly with the budget, with tasks involving purchasing and payroll. Balance sheets are essential tools in this career.

3. Financial advisor

National average salary: $57,245 per year

Primary duties: A financial advisor provides counsel to businesses and individuals. These professionals assess balance sheets over time and use that information to help you make a financial plan. Advisors work either independently or as a part of a firm. Business financial advisors use various modelling techniques to convert raw data from balance sheets into actionable information for the company.

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Balance sheet example

Learning how to create a balance sheet takes practice, and it helps to have a template. You can use this outline as a reference guide when customizing your balance sheet: