The Great Business

A balance sheet is often referred to as a snapshot of a person or business’s financial position in a given period of time. It’s used to help the business owner grasp better the financial position of their business. They are also a necessary financial reporting tool to present to potential lenders such as banks or investors.

Items in a balance sheet will vary depending on whether it is prepared for an individual, small business, or large corporation. Here are some of the basic items seen in a small business balance sheet:

Assets

Anything that offers value to the business, whether presently in possession or due to the company, is referred to as an asset. There are several subdivisions of assets. Current assets are those that can be converted into cash within one calendar year. While obvious, cash is also considered a current asset. Other examples include accounts receivable and inventory. Real estate or equipment may take some time to liquidate, so they are referred to as long-term or fixed assets.

As the name suggests, an intangible asset is one that cannot be seen or physically measured. The basic examples of intangible assets are things like patents, copyrights, or brand recognition.

Liabilities

Liabilities are roughly laid out in a mirror image of assets. Current liabilities are those that the small business is obligated to pay within 12 months. This is one of the most important indicators of the health and long-term survival chances for a company, since not being able to meet current liabilities can result in its quick demise.

One example of current liability is accounts payable, which are expenses incurred through the purchase of goods or services. Similarly, notes payables are written financial obligations to creditors to pay, usually with interest. Non-current or long-term liabilities do not come due within a year.