Balancing the Balance Sheet

See: Balance Sheet

Balance Sheet Definition

The balance sheet is a financial statement that shows a company’s financial position at a point in time. The balance sheet format comes in the following three sections:

The assets represent what the company owns. Then, the liabilities represent what the company owes. Finally, the owners’ equity represents shareholder interests in the company. The value of the company’s assets must equal the value of the company’s liabilities plus the value of the owners’ equity.

This balance sheet formula forms the basis of the statement, also known as the accounting equation.

Assets = Liabilities + Owners’ Equity

Balancing your balance sheet is one method of knowing your economics. To further shape your economics to result in profit, access the Know Your Economics Worksheet.

Balancing the Balance Sheet

The “balance” in balance sheet indicates the 2 sides have to balance every time. Therefore, the company‘s assets always have to equal liabilities plus owners’ equity. Now, let’s walk through the steps needed in order to know how to start balancing the balance sheet.

Balancing the Balance Sheet Steps

First, start by putting all the company‘s assets on the left side of the sheet. Let’s start with the current assets. For example:

ASSETS

Current Assets

  Cash                                    $  2,000

 Accounts receivable                        20,000

  Inventory                                 10,000

  Supplies                                   3,000

TOTAL CURRENT ASSETS:                    $  35,000

Now let’s add the other types of assets. These are “Property, Plant & Equipment” and “Intangible Assets“.

Property, Plant & Equipment

Land                                      $  5,000

Buildings                                  160,000                             

Equipment                                  200,000    

Less: acum depreciation                    (30,000)

NET PROP, PLANT & EQUIP                    335,000
Intangible assets

Goodwill                                   100,000

Trade names                                200,000

TOTAL INTANGIBLE ASSETS                    300,000
TOTAL ASSETS:                           $  670,000

Now that we have added all the assets together, go to the right side of the balance sheet. Record the liabilities – current and long-term.

LIABILITIES

Current Liabilities

   Notes Payable                         $  5,000

      Accounts Payable                     35,000

   Wages Payable                           10,000

       Interest Payable                     5,000

TOTAL CURRENT LIABILITIES                  55,000

Long-Term Liabilities

   Notes Payable                           50,000

   Bonds Payable                          500,000

TOTAL LONG-TERM LIABILITIES               550,000

TOTAL LIABILITIES                      $  605,000

After you have your liabilities, add the final portion of the balance sheet –  Owner’s Equity.

Owner's Equity

Common Stock                            $  50,000

Retained Earnings                          50,000

Less: Treasury Stock                      (35,000)

TOTAL OWNER'S EQUITY                    $  65,000

TOTAL LIABILITIES and OWNER'S EQUITY    $  670,000

Finally, you have added everything up. Now, verify if everything holds true to the accounting formula.

Assets = Liabilities + Owner's equity
$  670,00 = $  605,000 + $  65,000       

$  670,000 = $  670,000

Everything is balanced now, as it should be. If for whatever reason it does not end up balancing, look back at all your numbers and make sure they are all correct. If you need help shaping your economics, click here to download your free Know Your Economics guide.

Balancing the Balance Sheet

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Balancing the Balance Sheet

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