A balance sheet is a snapshot of the financial health of your business at one point in time. It shows what you own (assets) versus what you owe (liabilities and shareholders' equity).

Whether you’re an investor looking at a potential investment or a small business owner trying to make sense of your own financial situation, you can glean a lot from a glance at a balance sheet.Bilanz

To create a balance sheet, you must first identify your company’s assets on the reporting date. You’ll then break down your liabilities into current and noncurrent categories and subtotal each to find the total amount you owe. Finally, you must compare this total against your overall assets to see how much money your company is worth.

Most companies complete balance sheets on a regular basis, such as monthly, quarterly or annually. This helps them track their growth over time and understand what factors might influence future profits.

Depending on how your accountant prepares your balance sheet, different line items might be included or excluded. For example, if your accountant uses a special accounting method to depreciate inventory, this will change the totals posted on your balance sheet. Similarly, your accountant might also use a special formula to calculate your cash flow statement, which could also impact the numbers in your balance sheet.

The most liquid of all your assets, cash appears in the top-left corner of your balance sheet. You’ll also see a line item for “cash equivalents,” which are assets that can be converted to cash on short notice, such as marketable securities. Next come your current assets, including accounts receivable and inventory. Your accounts receivable will include the balance of all sales revenue that your company hasn’t yet collected, net of any allowances for doubtful accounts. As your company collects these accounts, the balance in this account will decrease and cash will increase.

Liabilities appear in the next section of your balance sheet and are broken down into both current and long-term liabilities. Current liabilities include your recurring expenses, such as rent and utilities, your debt repayments, interest payments and payroll. Your long-term liabilities are comprised of your deferred income taxes and any long-term loans.

After subtracting your company’s total liabilities from its total assets, you will arrive at your shareholders' equity. This represents the value that your shareholders have invested in your company, which is equal to the sum of your company’s shares and its retained earnings. This number is a good indication of your company’s financial standing, and it can be used to compare your company with others in the industry.