Balance Sheet Template: How to Prepare a Balance Sheet

The Financial Accounting Standards Board (FASB) has formulated certain widely accepted rules, standards, or procedures for companies to report accounting information. These are called generally accepted accounting principles (GAAP) that are used by companies to prepare financial statements to record and report accounting information.

As per GAAP, every business entity is required to prepare the balance sheet at the end of an accounting period, along with the other fundamental financial statements. This ensures internal and external stakeholders can get an accurate view of the business' financial position.

Key Takeaways:

• A balance sheet shows your business’ assets, liabilities and equity at a specific date, giving a clear snapshot of its financial position.
• It’s based on the simple equation Assets = Liabilities + Owner’s Equity, meaning what you own is funded by debt or equity.
• Balance sheets help you assess financial health, liquidity and solvency so you can make strategic decisions or apply for loans with confidence.
• Using a balance sheet template speeds up preparation, improves accuracy and reduces manual errors.
• QuickBooks can automatically generate and customise balance sheet reports, saving time and helping you share insights with partners or lenders.

What is a Balance Sheet and How Do You Prepare One?

A simple balance sheet is one of the three fundamental financial statements that give a snapshot of the financial position of your business entity at the end of an accounting period. 

It showcases your company’s assets, liabilities, and shareholder’s equity as on a specific date. That is, what your company owns, the amount it owes together with the amount that is invested by shareholders.

In other words, a company balance sheet is a financial statement that calculates the worth of your business, its equity, by deducting the amount that your business owes, its liabilities, from the amount that it owns, its assets.

The balance sheet is also as a statement that showcases sources of funds and the application of funds.

This is because your business requires assets that have a longer life, meaning more than one year. These resources can be acquired via funding provided either by you as an owner or a group of owners in the form of your investments, by banks in the form of loans, or by suppliers in the form of credit.

Thus, a simple balance sheet exhibits a list of resources (assets) and how these resources are funded (liabilities). So, a classified balance sheet is prepared by recording the sources of funds (liabilities + owner’s equity) on the left-hand side, and the application of such funds (assets) on the right side of the t-account.

This means that money invested in your business entity’s assets is either provided by the owners or the creditors. Accordingly, the sum total of assets must be equal to the sum total of liabilities and the owner’s equity.

Overview: Balance Sheet Definition

A balance sheet is one of the fundamental financial statements that provide a true and fair view of your business entity’s financial position, showcasing assets, liabilities, and owner’s equity, at a specific point in time.

In other words, a company's balance sheet is a financial statement that calculates the worth of your business, its equity, by deducting the amount that your business owes, its liabilities, from the amount that it owns, its assets.

Do I Need a Balance Sheet?

A company balance sheet is one of the more important financial statements, as it reveals important insights to both internal and external stakeholders and helps them in making informed financial decisions.

There are many reasons to prepare a balance sheet, including:

Strategic Decision Making

A balance sheet gives you an understanding of where the financial health of your business stands at any specific date, so you can make some important strategic decisions.

For instance, if the sum total of assets is less than the total of liabilities and shareholder’s equity, it is an indication that you need to reduce the amount you owe to outsiders.

This could include either increasing the sources of revenue, putting in more capital, or collecting payments from debtors.

Availing Loans and Advances

Balance sheet accounts allow banks to understand whether your business is financially sound enough to avail loans and advances.

By calculating the debt-equity ratio, they can know if extending additional loans to your business would be safe or risky.

Identifying the Trends

The balance sheets from several accounting periods help you to identify the trends in the various items listed on the balance sheets, so you can see how much your business has grown over a given period.

Short-Term Financial Standing

You can see the current assets against the current liabilities and get an understanding of the short-term financial health of your business entity.

Accordingly, you can know if you have sufficient funds in the short-term to pay off or meet your short-term obligations, like operating expenses, supplier payments, etc.

How Does a Balance Sheet Work?

There are two views that can help us in understanding the impact of economic events on the company balance sheet:

Resources and Claims View

According to this view, assets are resources that your business entity owns on a specific date. These resources provide benefits to your business entity for a long period of time, that is, more than one year.

On the other hand, liabilities are the amounts that your business entity owes to external stakeholders, like banks or creditors, and owner’s equity is the capital that belongs to you as an owner.

Sources and Use of Funds

Per this view, assets are the resources that are acquired by your business entity to be utilised over a long period of time, while the liabilities and owner’s equity are the funds through which such resources have been acquired.

Now, taking both the views into consideration, we come to the following simple balance sheet formula or balance sheet equation based on which the company balance sheet is prepared:

Assets = Liabilities + Owner’s Equity

Where,

Assets = Current Assets + Non-Current Assets

Liabilities = Current Liabilities + Non-Current Liabilities

Owner’s Equity = Share Capital + Retained Earnings

So, per this equation, the following are balance sheet accounts:

• Assets
• Liabilities
• Owner’s equity

How to Read a Balance Sheet?

There are certain things that you must keep in mind in order to read a new balance sheet properly.

These are as follows:

What Makes a Balance Sheet?

As stated above, a new balance sheet is divided into three parts:

• Assets
• Liabilities
• Owner’s equity

The detailed elements of the balance sheet are given below under the heading elements of a balance sheet.

Balance Sheet Equation

The balance sheet is based on the formula which states that assets must be equal to liabilities plus owner’s equity.

This is because the claims of both the creditors as well as the owners against your business entity must equate to the amount that you have invested in various business assets.

In other words, the worth of your business, its equity, is the difference between everything that you own in the form of assets and the amount that you owe to the outsiders in the form of liabilities.

Balance Sheet Format

Typically, both the asset and the liability side of the balance sheet are structured based on how current the assets and liabilities are.

That is, in the case of assets, the most liquid assets such as cash, inventory, etc are recorded first on the top of the new balance sheet, while the least liquid assets, like plant and machinery or land and building, are recorded at the bottom.

In the case of liabilities, the short-term liabilities, like creditors or short-term loans and advances, are recorded at the top of the new balance sheet, while the long-term liabilities including long-term loans and advances are showcased at the bottom.

The Role of the Balance Sheet in Financial Statements

There are three important financial statements that every business entity needs to prepare, each having its own purpose:

• A balance sheet is a financial statement that gives a snapshot of your business entity’s financial position at a particular point in time. It reveals the resources that your business entity has or owns (assets) and the claims of both the creditors (liabilities) and owners (shareholders equity) against such resources. It is a financial statement that provides useful insights to both the external and internal stakeholders about your entity’s financial status that further helps them in making informed financial decisions.
• The income statement, on the other hand, is a financial statement that provides the users of such statement information regarding the amount of profit or loss your business entity has earned or incurred during an accounting period. Further, it helps in determining how the profit or loss was generated or incurred by your business entity. For instance, the gross profit figure helps you to keep a check on the cost of goods and services that you provide as a business entity. Likewise, operating profit tells your ability as a business entity to earn a profit before taking into account the impact of the financing activities.
• The cash flow statement showcases cash inflows and cash outflows for an accounting period of your business entity to the user of such a statement. It provides insights to the users such as investors who can understand the cash-generating ability of your business entity and how cash is utilised.

The Balance Sheet Formula and Example

The balance sheet is based on the following accounting equation, where assets on one side of the equation equal to the liabilities and shareholder’s equity on the other side.

Your business has to get funds for everything that you own, its assets, and you can fund these assets either by borrowing it from the creditors, taking loans from banks, or taking liabilities, or avail these funds from investors, or shareholder’s equity.

For instance, if you, as a business, take a seven-year loan for plant and machinery worth $10,000, per the double-entry system of accounting, your cash account would increase by $10,000. On the other hand, the loan account would also increase by $10,000, balancing both sides of the balance sheet.

The assets, liabilities, and the shareholder’s equity can be further divided into current assets, current liabilities, long-term assets, and long-term liabilities. It is worth noting that these will vary depending upon the industry you are in and the type of business it is.

Elements of the Balance Sheet

There are three major balance sheet accounts.

These include:

• Assets
• Liabilities
• Owner’s equity

Each of these is further broken down into sub-items:

Assets

Assets are the resources owned by your business entity that provide you with economic benefits in the long run. These are further categorised into current assets and noncurrent assets.

Current Assets

Current Assets are the assets that can be converted into cash within one year or a normal operating cycle of your business entity, whichever is longer. Operating cycle is the time it takes you as a business entity to buy your produced inventory, sell the finished goods, and collect cash for the same.

There are a number of current assets that form part of your company’s balance sheet, including:

• Cash
• Marketable securities
• Accounts receivables
• Inventories
• Prepaid expenses

Non-Current Assets or Fixed Assets

The non-current assets are the assets that cannot be easily converted into cash in the normal course of business. They are long term assets that have been purchased for providing goods or services and are not meant for resale to earn profits.

The non-current assets can be further subdivided into tangible non-current assets, like plant and machinery, property, long-term investments, etc., and intangible non-current assets, like goodwill, copyright, etc.

Liabilities

Liabilities are the money that you owe as a business entity to your creditors, lenders, and equity owners against the assets of your business entity. These can be further grouped into current liabilities and non-current liabilities.

Current Liabilities

These are the liabilities that are required to be paid off within the normal operating cycle of the business or within one year, whichever is longer.

Current liabilities include:

• Accounts payables
• Accrued expenses
• Current portion of long-term debt
• Deferred revenues

Non-Current Liabilities

These are the liabilities that are due for payment for more than one year, including:

• Long-term borrowings
• Deferred tax liabilities
• Long-term provision

Owner’s Equity

Owner’s Equity is nothing but the amount invested by the investors in your business entity, meaning:

Owner’s Equity = Paid-In Capital + Retained Earnings

This means that increase in your business earnings would ultimately lead to an increase in owner’s equity.

Example of a Balance Sheet

Following is the balance sheet sample of Star Enterprises Pvt Ltd as of December 31, 2023:

How To Create Balance Sheets For Your Small Business?

There are a number of ways in which you can prepare a new balance sheet for your business, but the fastest and most reliable way of preparing a balance sheet is with the help of accounting software.

However, you can also choose to prepare a new balance sheet manually or using a balance sheet template.

Method 1: Preparing Balance Sheet By Hand

It can be very challenging to prepare a balance sheet sample by hand. However, if you are running a business that operates on a very small scale, then preparing the balance sheet by hand is the most appropriate way.

To create a balance sheet by hand, organise the various items that you are keeping track of under the three main heads of the balance sheet: assets, liabilities and equity.

Assets

Assets are divided into two sub-sections, current assets and non-current assets. Accordingly, you first need to record all the current assets, like cash, inventories, debtors, etc.

Once the current assets are recorded, you need to report non-current or the fixed assets of your company, such as property, plant and equipment, investments, etc.

After recording both the current and non-current assets, you need to total the amounts to determine the total of the asset side of your company’s balance sheet.

Liabilities

The next section of the balance sheet consists of liabilities that you owe to external parties. In this section, you need to first report your business’s current obligations, like accounts payables, short-term loans, etc.

Next, you need to record all the non-current liabilities that you are keeping track of like long-term loans from banks and other long-term liabilities.

Once both current, as well as non-current liabilities, are recorded, you need to calculate the total of current liabilities and non-current liabilities in order to determine the total amount of liabilities.

Owner’s Equity

This is the last section of your business’s balance sheet where you need to report the capital invested by the investors and the portion of the retained earnings of your business entity.

Then, take the sum total of the capital and retained earnings to determine the total amount of shareholder’s equity.

Method 2: Preparing Balance Sheet By Spreadsheet

A balance sheet template is done the same way as done manually. The benefit of preparing a balance sheet template in excel or in a spreadsheet is that you can use SUM and DIFFERENCE formulas to make your calculations quick and accurate.

The following are the steps to prepare a balance sheet in a spreadsheet:

1. Open Google Spreadsheets and click on the Blank Sheet to start a new spreadsheet.
2. Rename the spreadsheet by clicking the dropdown next to the sheet number mentioned at the bottom of the window.
3. Give a Title to your spreadsheet such as ‘Balance Sheet of Star Enterprises Pvt Ltd As On December 31, 2019’.
4. Put Assets as the heading in the next row and start recording your assets in the order of liquidity. That is the first record of current assets followed by fixed assets. Put their amounts in the column adjoining the column of assets. Once this is done, calculate the total of the asset side using the SUM function. And in order to calculate net fixed assets, use the MINUS function to deduct depreciation from the Gross Fixed Assets. This is the debit side of your balance sheet.
5. Likewise, record liabilities in the column adjoining the amount column of the assets. Record current liabilities first followed by non-current liabilities. Put their amounts in the column adjoining the column of the liabilities. Once this is done, calculate the total of the liability side using the SUM function. This is the liability side of the balance sheet.
6. Remember, that the total of the asset side must equal the total of the liability side.

You can even prepare a balance sheet in a spreadsheet in a vertical format where assets are recorded on the top whereas the liabilities are recorded at the bottom below the assets. Once the spreadsheet is complete, you can convert this into a balance sheet PDF format so that you can share it with the owners or the other stakeholders of your business.

Method 3: Preparing Balance Sheet By QuickBooks

For preparing a balance sheet in QuickBooks, you need to perform the following steps:

1. Link your bank account with QuickBooks, then categorise transactions so that QuickBooks records these transactions in the software. Check videos on how to link bank accounts with QuickBooks and how to categorise transactions to know more.
2. Once this is done, go to the ‘Reports’ tab on your dashboard and click on the Balance Sheet Report.
3. You will see QuickBooks automatically generating a Balance Sheet Report in the sections Assets, Liabilities, and shareholder’s equity.

You can export the balance sheet report in excel format from QuickBooks Online accounting software and then covert the same into balance sheet PDF format.

Balance Sheet Report By QuickBooks

A balance sheet in QuickBooks can be generated easily and accurately by navigating 'Reports' > 'Balance Sheet' to generate the report automatically.

You can also customise your balance sheet in QuickBooks by changing the accounting period, accounting method, adding sub-columns for comparison with previous periods, and customising the header and footer of the balance sheet.

In addition to this, you can also print and email the balance sheet report directly from QuickBooks, you can even export the balance sheet of a specific accounting period in Excel format.

Restore a Deleted Balance Sheet Account in QuickBooks

QuickBooks also allows you to restore a balance sheet account that has been deleted or is inactive.

The following are the different ways in which you can restore a deleted account in QuickBooks:

Chart of Accounts

1. Go to Settings and select Chart of Accounts
2. Above the Action column, select Settings, then select ‘Include Inactive’
3. Find the deleted account
4. In the Action column, select ‘Make Active’

Audit Log

1. Go to Settings and select ‘Audit Log’
2. Find the deleted account
3. In the Event column, select the account hyperlink, which will take you to the account screen
4. At the bottom left, uncheck ‘Inactive’
5. Select ‘Save and close'

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