Understand and Create a Balance Sheet

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Step 1

The first section of the balance sheet is the assets of the organization. This can most easily be defined as what does the company have of value. This section is divided into current and noncurrent assets. Current assets are those that can be turned into cash relatively easily such as cash or cash equivalents (equities with recognizable market values), accounts receivable from customers and inventory of goods. Noncurrent assets include such things as plant, property and Equipment (PP&E). These assets are not easily converted to cash.

Step 2

The second half of the balance sheet details the liabilities of the organization. Some people state this as the claims against the assets. This section is divided into liabilities and equity. Liabilities can be either current or noncurrent. Current liabilities include accounts payable, interest payable, any accrues expenses or any other liability that one would expect to be paid in the upcoming year. Noncurrent liabilities are items such as long-term financing in the form of loans or bonds issued.

Step 3

The second section of the liabilities section is that of owner’s equity. Should assets be greater than liabilities then value exists in the organization and the owners own this value. The Owner’s Equity section includes common stock (which has been purchased by the owners previously), treasury stock (the part of the company owned by the company itself), any paid-in capital above common stock and retained earnings. Retained earnings are the profits of the company after all expenses and dividend contributions have taken place.

Step 4

Review the statement to ensure that assets are equal to liabilities plus owner’s equity. All balance sheets must be in balance of this equation.


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