Understanding Financial Documents: Balance Sheets
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There are a number of different types of basic financial documents that a small business owner needs to understand. One of these is the Balance Sheet. The balance sheet is based on the accounting equation: Assets = Liabilities + Owner's equity. The balance sheet below is a very simple example, and assumes that the business owner has invested $200 of his own money, as well as $400 of borrowed money.  Note that a balance sheet is NOT the same as an income statement or a cash flow statement. Where an income statement tells you how much income you earned over some period, your balance sheet tells you what you have and where it came from at a specific point of time. This gives you an overall picture of how your business is going, and the extent to which your liabilities are weighing down your business. You can see a sample balance sheet for the same business at the end of the month below: 
A more sophisticated type of balance sheet is called a classified balance sheet. This type of document classifies assets and liabilities into separate categories. 
On a classified balance sheet, assets are listed in order of liquidity, including current assets and long-term assets. Liabilities are grouped in a similar manner. 
Lastly we can look at a comparative balance sheet. This type of sheet is a useful tool for financial analysis, as you can compare the results from your business over multiple years. The last sample is a comparitive year-end balance sheet that has results from two consecutive years. 
The above information is made available through: CreativeCommons.org  Derivative by Athivia College (2010), Original materials: Collins, Karen., Exploring Business. Retrieved Apr 8, 2010 from http://www.flatworldknowledge.com/node/123782 . Collins, Karen. Exploring Business. 1969 . Flat World Knowledge. 8 Apr, 2010. |
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