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Also called a statement of financial position, a balance sheet is a financial "snapshot" of your business at a given date in time. It lists your assets, your liabilities, and the difference between the two, which is your owner's equity, or net worth. The accounting equation (assets = liabilities + owner's equity) is the basis for the balance sheet.
The balance sheet is prepared after all adjusting entries are made in the general journal, all journal entries have been posted to the general ledger, the general ledger accounts have been footed to arrive at the period end totals, and an adjusted trial balance is prepared from the general ledger amounts.
Financial statements normally do not show cents. All amounts should be rounded to the nearest dollar.
The following is an example of a balance sheet for a sole proprietorship:
|Beta Sales Company
December 31, 20XX
|Assets||Liabilities and Capital|
|Current Assets||Current Liabilities|
|Cash||$12,300||Accounts payable||$ 8,900|
|Accounts receivable||22,900||Wages payable||11,525|
|Inventory||32,090||Total Current Liabilities||$20,425|
|Prepaid Insurance||2,500||Long-Term Liabilities|
|Total Current Assets||$69,790||Bank Loan Payable||17,500|
|Fixed Assets||Total Long-Term Liability||17,500|
|Less: Accumulated Depreciation||(78,321)||Capital|
|Total Fixed Assets||21,879||Tom Beta, Capital||53,744|
|Total Assets||$91,669||Total Liabilities/Capital||$91,669|
For more detailed information on balance sheets and other financial statements, see our full discussion of financial statements.