How to create a professional Balance Sheet

There are 4 different types of financial statements businesses should consider; an income statement, a balance sheet, a cash flow statement, and a statement on retained earnings. 

These are the four main financial statements used to examine a company's finances, but in today's article, we'll focus on balance sheets, we’ll explain why they're important, and how you can begin to make one that looks professional.

What is a Balance Sheet?
A balance sheet shows the assets, liabilities, and shareholders’ equity of a company at a certain point in time. They provide a glimpse of what your company owns and owes, as well as the amount invested by its owners, all in one day's report. A balance sheet shows how much a company is worth at any particular point in time, allowing you to better comprehend its financial situation.

It contains many components following:

  • Assets
The balance sheet's assets column details what your company possesses in terms of value that may be converted into cash. Your assets will be listed in order of liquidity on your balance sheet, which means they will be listed in order of how readily they may be converted to cash. Within this section, you will also find both current and long-term assets. 

  • Liability
Our liabilities refer to the money you owe to others, such as recurrent bills, loan repayments, and other types of debt. Current and long-term obligations are the two types of liabilities. 

Rent, utilities, taxes, current payments toward long-term obligations, interest payments, and salary are all examples of current liabilities. Long-term debts, deferred income taxes, and pension fund liabilities are all examples of long-term liabilities.

  • Shareholder or owner’s equity
Shareholders or owner’s equity is simply your net assets. Additionally, it also refers to:

  • the amount of money made by a company;
  • the amount of money invested by the company's owners (or shareholders); 
  • any capital that has been donated.

This document is considered highly essential because of the insights it provides. With a balance sheet, you can compare your balance sheet to the rest of your financial statements. You'll be able to better grasp the connections between different accounts this way.

Do I need to create one for my own business?
Balance sheets serve a great purpose to your business should you create one for it. They are mainly created with the purpose of containing a clear visual of a company’s financial situation. 

They are also incredibly important to executives, investors, analysts, and regulators who use this piece of information to assess a company's current financial health. In addition to this, a balance sheet is frequently used in conjunction with the income statement and the cash flow statement. 

With a good balance sheet, you can learn many things about your business’s financial situation and these can be very useful to you and your business if you wish to do the following:
  • Analyse and monitor business growth
  • Reduce the likelihood of problems that could occur in the future
  • Assess your creditworthiness

On the contrary, before you begin to create one, you should ask yourself whether your business really needs a balance sheet in the first place. An unincorporated business is not required by law to create a balance sheet for tax purposes or for any other reason. Preparing one for a very tiny business may likewise be too expensive. These are some of the reasons why you shouldn't prepare a balance sheet right now.

Here are some things you can consider first:
  • The size of the company;
  • The additional cost of preparing a balance sheet;
  • The advantages of maintaining a balance sheet from year to year;
  • Tax hazard.

How to create a Balance Sheet?
To make a basic and professional balance sheet, follow these steps:

  • Decide on the reporting date and period
A balance sheet should show information about the company's total assets, liabilities, and shareholders' equity as of a specified date, known as the reporting date. The reporting date is frequently the last day of the reporting period. 

The majority of businesses, particularly those that are publicly traded, will report on a quarterly basis. 

  • Determine Your Assets
Assets are listed on a balance sheet in two ways: as individual line items and as total assets. Splitting assets into multiple line items will make it easier for analysts to comprehend what they are and where they came from; ultimate analysis will involve tallying them all together.

  • Identify your liabilities
You'll need to figure out what your liabilities are. Again, these should be broken down into line items and totals, with current and non-current liabilities included.

  • Calculate the Shareholders’/ owner’s equity
Shareholders' equity refers to a company's net worth or the amount of money that would be given to shareholders if all of the company's assets were liquidated and all of its debts were paid. 

It's easy to compute by subtracting a company's total liabilities from its total assets, which are both itemised on the balance sheet.

  • Ensure that the balance sheet is balanced
Total assets must be weighed against total liabilities including equity. You'll need to add liabilities and shareholders' equity together to do this.

Balance sheets are a time-consuming activity that may compel you to deviate from your primary responsibility of running your business. External accountants are among those who can analyse balance sheets effectively and accurately.

By providing important accounting services, we at Persona Finance hope to add even more value to you and your organisation. Please contact Persona Finance at [] for additional information.
Accounting and Finance