How to make a balance sheet (simple format for small business)
A balance sheet is a snapshot of what your business owns and owes on a given date. It is simpler than it looks: assets on one side, liabilities plus equity on the other, and the two must match.
Step 1: List your assets
Everything the business owns: cash, bank balance, money customers owe you (receivables), stock, equipment and property. Split into current (within a year) and fixed (long-term).
Step 2: List your liabilities
Everything the business owes: supplier dues (payables), loans, taxes due, salaries pending. Split into current and long-term the same way.
Step 3: Work out owner's equity
Equity is what is left for the owner: assets minus liabilities. It includes capital you put in plus profits retained in the business.
Step 4: Arrange it in the standard format
Assets on one side (or top), liabilities and equity on the other (or below). Total assets must equal total liabilities plus equity. That is why it 'balances'.
Step 5: Check it balances
If the two sides do not match, something is miscounted or missing. Recheck receivables, payables and the equity figure until they equal.
Frequently asked questions
Why must a balance sheet balance?
Because everything the business owns was funded either by what it owes (liabilities) or by the owner (equity). Assets = liabilities + equity by definition, so the two sides always equal.
How often should I make one?
At least yearly for filing, and monthly or quarterly if you want a live view of the business's health. Accounting software generates it instantly from your entries.
What is the difference between a balance sheet and a P&L?
A balance sheet is a snapshot on one date (what you own and owe). A profit and loss statement covers a period (income minus expenses). You need both.