What Is A Balance Sheet? (With Template And Example)

Updated 5 December 2022

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A balance sheet is a financial statement that provides a snapshot of a company's financial status. This document helps a company look at its assets and liabilities and identify opportunities for improving its finances. Understanding what a balance sheet includes and its importance can benefit those working in the finance and accounting field. In this article, we answer 'What is a balance sheet?', discuss what this financial document includes and provide you with a template and example to help you create your own.

What is a balance sheet?

The answer to the question, “What is a balance sheet?” is that it is an important financial statement a business uses to understand their financial health at a point in time. The balance sheet primarily includes information about the company's assets, liabilities, equity and investments. It gives the management and shareholders a snapshot of what the company owns and what it owes to other parties at a point in time. A balance sheet can also help you determine a company's net worth by subtracting its total liabilities from its total assets.

You can prepare this financial statement at any point, but often companies create a balance sheet at the end of the accounting period. These reporting periods may vary depending on the company's preference, but they usually occur once a quarter or year. A balance sheet is important because it:

helps to benchmark and analyse a company's financial history to understand its financial trends and progress
helps understand the company's ability to pay off debts
helps creditors and investors predict the future performance and profitability of the company
helps evaluate a company's solvency, liquidity and capital structure
helps a company determine ways to meet its financial obligations
helps a company in receiving debt or equity financing
helps a company understand how to use credits to finance its operations

What does a balance sheet include?

The balance sheet of different companies looks different because every company has unique financial situations, business operations and business transactions. Here are some common items you can find on a balance sheet:

Assets

A company's assets are everything they own, including those items that the company can sell. Assets are also certain services for which the company has already paid in advance, such as legal fees, prepaid advertising costs, rent and insurance. Assets can be 'liquid,' which means you can convert them into cash or 'non-liquid,' which means you cannot convert them into cash. A balance sheet usually includes the following types of assets:

Current assets

Any asset that you can convert into cash within one year is the company's current asset. Examples include:

accounts receivable or the total amount of money owed by the company's customers
cash and cash equivalent
short-term investments
short-term loans
prepaid expenses
foreign currency, bonds and stocks
inventory items

Fixed assets

Assets that take longer than one year to convert to cash are non-current or long-term assets. Examples include:

land and buildings
equipment and machinery
furniture
company-owned vehicles
equity and other investments

Other assets

Some assets do not easily fit into current or fixed asset categories because of their intangible nature. Examples include:

Intangible assets: Intangible assets provide long-term economic value but have no physical presence. Some examples of intangible assets include patents, trademarks, copyrights, goodwill or any intellectual property that a company owns.
Financial assets: Financial assets comprise a company's investments, like equity, stocks, other securities and corporate bonds.

The value used for recording intangible assets depends upon how a company amortises, revalues and depreciates them.

Liabilities

Liabilities are debts that a company owes to a third-party such as lenders or banks. These differ from legal liabilities, which make a business owner responsible for losses and injuries they inflict upon others. Companies use the liability section of a balance sheet to maintain a record of unpaid balances of customers, vendors and employees. As an accounting concept, liabilities are not harmful because they allow a company to grow and expand without paying for all costs upfront. A balance sheet includes the following types of liabilities:

Current liabilities

These are the debts a company pays within one year. Examples include:

accounts payable, which is the total amount of money owed to suppliers for items that the company purchased on credit
wages owed to employees for work completed
loans that a company pays back in one year
taxes payable
accrued expenses that occur when a company encounters an expense, they have not invoiced
short-term debt
dividends payable
unearned revenue

Non-current liabilities

Non-current or long-term liabilities are debts that last over one year. Examples include:

deferred income taxes
retirement benefits payments
long-term debts
long-term provisions

Shareholder's equity

The shareholder's equity is the total amount of money a company has when creating a balance sheet. It is the company's net value after the company pays its debt. The amount of assets listed on a balance sheet equals the balance sheet's total liabilities and equity accounts. Some commonly seen items in the shareholder's equity are:

preferred stock and common stock
reserve and surplus
share capital
retained earnings
treasury stock

The amount of assets listed on a balance sheet equals the total liabilities and equity accounts listed. This gives the formula:

Assets = Liabilities + Equity

A balance sheet usually lists these items in order of their liquidity. This means the sheet first lists items that can be easily converted into cash. This financial statement also lists liabilities in order that they are due for settlement.

What does a balance sheet exclude?

One key component missing from a balance sheet is the ability to compare the financial status over different periods. You can find such information in other financial statements, like cash flow and income statements. The balance sheet does not provide information about the company's performance. To understand how much money a company brought in, you require the income statement. The income statement also gives information regarding how much a company spends and whether they made profits or losses during a specific period.

Who prepares the balance sheet?

Different people may be responsible for creating a balance sheet depending on the company. For small start-ups and small-sized private sector companies, the company's bookkeeper prepares the financial statement. Mid-sized private companies might prepare a balance sheet internally and get an external review. Public sector or government-owned companies use a public accountant to keep books and maintain high bookkeeping standards.

Balance sheet template

Though a balance sheet varies from company to company, they all aim to provide a company's financial standing. For instance, a bank's balance sheet differs from the balance sheet of an information technology (IT) company. Here is a template to help you create your own balance sheet:

LIABILITIES

Current liabilities:
Trade payable
Short-term borrowings
Short-term provisions
Other current liabilities

Non-current liabilities:
Long-term borrowings
Other long-term liabilities
Deferred tax liabilities
Long-term provision

Shareholder's equity:
Share capital
Reserves and surplus

Total liabilitiesAs of (Date)

₹000
₹000
₹000
₹000

₹000
₹000

₹000

ASSETS

Current assets:
Investments
Account receivables
Cash and cash equivalent
Short-term loans and advances
Other current assets

Fixed assets:
Property and equipment
Equity and other investments
Less accumulated depreciation
Total fixed assets

Intangible assets:
Goodwill
Common stocks
Trade name
Other intangible assets

Total Assets As of (Date)

₹000
₹000
₹000
₹000
₹000

₹000
₹000
₹000
₹000

₹000After entering all the assets and liabilities, compare the total assets with total liabilities and equity to ensure they balance.

Example of a balance sheet

A balance sheet can help a company determine the financial areas that require improvement. For instance, when the assets outweigh the company's liabilities, it is a good sign and means that the business has equity. Use this example to understand what a balance sheet of a company looks like:

LIABILITIES

Current liabilities:
Accounts payable
Wages payable
Total current liabilities

Non-current liabilities:
Long-term borrowings
Mortgage
Total non-current liabilities

Shareholder's equity:
Common stock
Retained earnings
Total shareholder's equity

Total liabilities

As of March 31, 2021

₹1,20,000
₹4,60,000
₹5,80,000

₹3,50,000
₹12,25,000
₹15,75,000

₹1,96,000
₹3,00,000
₹4,96,000

₹26,51,000

ASSETS

Current assets:
Account receivables
Cash and cash equivalent
Inventory
Prepaid expenses
Total current assets

Fixed assets: Property and equipment
Equity and other investments
Total fixed assets

Total Assets