![]() ![]() Here’s some metrics you can calculate using your balance sheet: Or you might compare current assets to current liabilities to make sure you’re able to meet upcoming payments. At a glance, you’ll know exactly how much money you’ve put in, or how much debt you’ve accumulated. Here’s a summary of Where’s the Beef’s equity: OWNER’S EQUITYīecause the balance sheet reflects every transaction since your company started, it reveals your business’s overall financial health. ![]() You’ve also taken $9,000 out of the business to pay yourself and you’ve left some profit in the bank. Retained earnings (all your revenue minus all your expenses and distributions since launch)Įquity can also drop when an owner draws money out of the company to pay themself, or when a corporation issues dividends to shareholders.įor Where’s the Beef, let’s say you invested $2,500 to launch the business last year, and another $2,500 this year.Capital (the amount of money invested into the business by the owners).It shows what belongs to the business owners and the book value of their investments (like common stock, preferred stock, or bonds). This category is usually called “owner’s equity” for sole proprietorships and “stockholders’ equity” or “shareholders’ equity” for corporations. Here are Where’s the Beef’s liabilities: LIABILITIESĮquity is money currently held by your company. You also have a business loan, which isn’t due for another 18 months. Returning to our catering example, let’s say you haven’t yet paid the latest invoice from your tofu supplier. Loans that you don’t have to pay back within a year.Loans that you have to pay back within a yearĪnd here are some non-current liabilities:.Wages you owe to employees for hours they’ve already worked.Accounts payable (what you owe suppliers for items you bought on credit).These are also known as short-term liabilities and long-term liabilities. Just like assets, you’ll classify them as current liabilities (due within a year) and non-current liabilities (the due date is more than a year away). Next come your liabilities-your business’s financial obligations and debts. Here’s how you’d list your assets on your balance sheet: ASSETS As of December 31, your company assets are: money in a checking account, an unpaid invoice for a wedding you just catered, and cookware, dishes and utensils worth $900. Let’s say you own a vegan catering business called “Where’s the Beef”. Intangible assets like patents, trademarks, copyrights, and goodwill (you would list the market value of what fair price a buyer might purchase these for).Machinery and equipment (less accumulated depreciation).Long-term assets (or non-current assets), on the other hand, are things you don’t plan to convert to cash within a year. Cash equivalents (currency, stocks, and bonds). ![]() Accounts receivable (money owed to you by customers).Money in transit (money being transferred from another account).Anything you expect to convert into cash within a year are called current assets. Even intangible assets like intellectual properties, trademarks, and copyrights should be included. Bank accounts and other cash accounts should come first followed by fixed assets or tangible assets like buildings or equipment with a useful life longer than a year. List your assets in order of liquidity, or how easily they can be turned into cash, sold or consumed. Let’s start with assets-the things your business owns that have a dollar value. They are organized into three categories: assets, liabilities, and owner’s equity. You’ll be able to see just how far you’ve come since day one.įurther reading: How to Read a Balance SheetĪt a high level, a balance sheet works the same way across all business types. You can also compare your latest balance sheet to previous ones to examine how your finances have changed over time. This will tell you whether you have the ability to pay all your debts in the next 12 months. Even more immediately applicable is the current ratio: current assets / current liabilities. The information in your company’s balance sheet can help you calculate key financial ratios, such as the debt-to-equity ratio, a metric which shows the ability of a business to pay for its debts with equity (should the need arise). Investors, business owners, and accountants can use this information to give a book value to the business, but it can be used for so much more.Īt a glance, you’ll know exactly how much money you’ve put in, or how much debt you’ve accumulated. Because the balance sheet reflects every transaction since your company started, it reveals your business’s overall financial health.
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