The accounting equation
Every balance sheet rests on one equation: assets = liabilities + equity. What the business owns was paid for either by someone it owes (liabilities) or by the owners (equity). If the two sides don't match, something is missing or entered twice, and the template shows the exact difference.
What goes where
- Current assets: cash in every bank account, accounts receivable, inventory, prepaid expenses such as insurance paid in advance.
- Fixed assets: equipment, furniture, vehicles and buildings at cost, less accumulated depreciation.
- Other assets: security deposits, long-term investments, intangible assets.
- Current liabilities: accounts payable, credit card balances, sales tax and payroll taxes collected but not yet paid, the current portion of loans.
- Long-term liabilities: the rest of loan and mortgage balances.
- Equity: owner's capital, owner's draws (negative), retained earnings from prior years, and net income for the current year.
A balance sheet that holds up
Reconcile every bank and credit card account to its statement for the balance sheet date first. A balance that doesn't match a statement is the most common reason a balance sheet looks right but isn't. The bank reconciliation tool does that comparison for you.