Sample Balance Sheet Financial Statement for Small Business

For a small business there are three basic financial statements. There’s the income statement, which reports the profit or loss for the company. There’s also the statement of cash flow that analyzes the businesses ability to generate ready money. The final statement is the balance sheet. The balance sheet shows the assets, liabilities and owner’s equity at a specific point in time, usually month and fiscal year end.


How to Read a Balance Sheet

The main function of the balance sheet for a small business is to report owner’s equity. It can also be listed as net worth or stockholders shares for a corporation. The actual balance sheet is made up of three basic sections

  • Assets
  • Liabilities
  • Owner’s equity

Besides reporting owner’s equity, the report also displays the monetary value of assets as well as the business debts or liabilities.

In order to read a balance sheet, it’s important to understand how owner’s equity is calculated. The calculation is simply

Assets – Liabilities = Owner’s Equity

The reason it’s known as a balance sheet is that total assets must equal (or balance) with the total sum of liabilities and owner’s equity. In the above equation, the reciprocal of liabilities + owner’s equity must be equal to total assets. If total liabilities exceed total assets, then the company would have a negative net worth. A company that has relatively low debt compared to assets would naturally have a higher net worth.

How a Balance Sheet is Created

The balance sheet is created at the end of an accounting period, like the end of a particular month. The general ledger accounts are totaled and transferred to the appropriate financial statements. Assets, liability and owner’s equity accounts are transferred to the balance sheet. Revenue and expense accounts are transferred to the income statement or profit and loss statement.

Sample Balance Sheet

The following sample is a basic example for a retail store that sells a product. Depending on the business model, there can be difference in the asset, liability and owner’s equity accounts. Inventory for example could be broken down into several inventory accounts and so on.

Balance Sheet for XYZ Company

June 1, 20xx

Assets

  • Cash $10,000
  • Accounts Receivable $5,000
  • Inventory $50,000
  • Equipment $12,000
  • Land & Building $150,000
  • Furniture $8,000

Total Assets $235,000

Liabilities

  • Suppliers Payable $10,000
  • Accounts Payable $15,000
  • Notes Payable $125,000

Total Liabilities $150,000

Owner’s Equity

  • Draws ($2,000)
  • Paid in Capital $7,000
  • Retained Earnings $80,000

Total Owner’s Equity $85,000

Total Assets $235,000

Total Liabilities and Owner’s Equity $235,000

The balance sheet is an important analytical tool for any business. Besides reporting the company’s net worth, it’s also an indication of the businesses use of its assets. The general ledger accounts for assets and liabilities should be set up in a manner that allows the entrepreneur to best analyze the balance sheet.