Basic Balance Sheet Examples: How to Create and Read Them

Understanding your company’s financial health doesn’t have to be complicated. If you want to know where your business finances stand today (or any day), one of the most powerful ways to get a clear picture is a balance sheet. 

This post explains what a balance sheet is and shows you how to create or read one with a few simple examples.

What is a balance sheet?

Think of it as a snapshot of your business’s financial life at a specific moment in time. A balance sheet lists everything you own (your assets), everything you owe (your liabilities), and what’s left over (your equity). 

It’s like taking a financial selfie! By laying it all out, you can see exactly where you stand and make plans to get where you want to be.

Key components of a balance sheet

Let’s break down the balance sheet into bite-sized pieces. There are three main components you need to know about: assets, liabilities, and equity. Understanding these will help you unlock the secrets of your financial health.

Assets

Assets are all the resources your business owns that have economic value. Whether you’re a freelance photographer, a solo software engineer, or a side-hustle delivery driver, your assets might include your camera gear, laptop, specialized software, or even the cash in your business account. 

Assets can be further divided into two categories:

• Current assets: These are assets you can easily convert into cash within a year. For small businesses and people who are self-employed, this might include the money in your business checking account and any payments due from clients (also known as accounts receivable).
• Non-current assets: These are long-term investments that support your business over time — your high-quality camera equipment, your powerful computer setup, or even a company vehicle.

A balance sheet lists these assets so you can easily see all the company’s resources. It’s empowering to know exactly what you own, so you can make the most of your business!

Liabilities

Liabilities are the debts and obligations your business owes to others. For a small business, your liabilities might include unpaid bills to suppliers, your business credit card balance, and maybe a small business loan you took to get started. 

Just like assets, liabilities are split into two categories:

• Current liabilities: Debts due within a year. These could be accounts payable to vendors, short-term loans, credit card balances, or upcoming tax payments.
• Long-term liabilities: Debts that take longer to pay off, such as equipment financing, other long-term loans, or leases on office space or equipment.

Understanding your business liabilities helps you manage your debts wisely and keep your cash flow healthy. By staying on top of what you owe, you can avoid surprises down the road and make smarter decisions about investing in your business’s growth.

Equity

Equity is what’s left when you subtract your liabilities from your assets. For a business, it’s the value of the owners’ or investors’ share in the company. Building your equity means you’re growing your wealth, which is always a good thing!

The balance sheet equation

Here’s the magic formula:

Assets = Liabilities + Equity

This simple equation ensures that your balance sheet is always … well, balanced! It shows that everything you own is financed either by borrowing money (liabilities) or with your own funds (equity). It’s a simple yet powerful way to understand your financial position.

Purpose of a balance sheet in financial analysis

Why bother with a balance sheet? Because it’s a powerful tool that gives you insights into your company’s financial health. By analyzing your balance sheet, you can:

• Assess liquidity: Can you cover your short-term expenses?
• Evaluate solvency: Are you in good shape to meet your long-term obligations?
• Plan strategically: Identify areas where you can improve and set financial goals.

In short, a balance sheet helps you make informed decisions and take control of your financial future.

Importance of balance sheets

Balance sheets aren’t just for accountants — they’re for anyone who wants to get serious about their finances. Here’s why they’re important:

• Transparency: See exactly where your money is coming from and where it’s going.
• Accountability: Track your financial progress over time.
• Decision-making: Make smarter choices about spending, saving, and investing.
• Goal setting: Set realistic financial goals and create a roadmap to achieve them.

By regularly reviewing your balance sheet, you’re setting yourself up for success!

How to construct a balance sheet

Ready to create your own balance sheet? It’s easier than you might think. Let’s walk through the steps together.

Step 1: Gather financial data

First, collect all your financial information. This includes bank statements, bills, loan documents, and records of assets like property deeds or investment accounts. The more accurate your data, the clearer your financial picture will be.

Step 2: Classify your assets

List all your assets and categorize them into current and non-current:

• Current assets: Cash, checking accounts, savings accounts, stocks, and anything else you can turn into cash within a year.
• Non-current assets: Real estate, vehicles, and other long-term investments.

This helps you understand how liquid your assets are.

Step 3: Classify your liabilities

Next up, list your liabilities, again dividing them into current and long-term:

• Current liabilities: Credit card balances, utility bills, and other debts due within a year.
• Long-term liabilities: Mortgages, vehicle loans, and other debts that take longer to pay off.

Knowing your liabilities helps you plan how to tackle your debts effectively.

Step 4: Determine your equity

Subtract your total liabilities from your total assets:

Equity = Assets – Liabilities

Voilà! You’ve calculated your equity, which represents your net worth or, for a business, the owner’s stake in the company.

Step 5: Format and present the balance sheet

Organize all this information into your preferred balance sheet format. Balance sheets can range from a few simple lines to a wildly complicated list of assets, liabilities, and shareholder equity, but they all come down to the same thing — showing what the company owns and owes, and what’s left over for the company’s owners or shareholders.

Make sure your total assets equal your total liabilities plus equity. If they do, congrats — you’ve successfully balanced your balance sheet!

Types of balance sheets

There are different ways to present a balance sheet, depending on your needs. Here are two common types:

Classified balance sheet

This type organizes assets and liabilities into subcategories like current and non-current, making it easier to assess liquidity and financial health. It’s great for getting a detailed view of your finances.

Comparative balance sheet

A comparative balance sheet presents financial data from multiple periods side by side. This lets you track changes over time, spot trends, and make adjustments as needed. It’s like watching your financial journey unfold!

You don’t have to choose between them — it’s really a matter of what you want to see. A comparative balance sheet can also be classified, separating out your short-term and long-term assets and liabilities.

Analyzing balance sheets

Creating a balance sheet is just the first step. Analyzing it helps you make informed decisions. 

Key metrics to consider

• Current ratio: This measures your ability to pay short-term obligations. Calculate it by dividing your current assets by your current liabilities. A ratio above 1 is generally good because it means you own more than you owe, but a ratio between 0 and 1 isn’t necessarily bad. A start-up loan, for example, might take some time to pay down.
• Debt-to-equity ratio: This shows how much debt you have compared to your equity (the value of your ownership in the company). Divide total liabilities by total equity. A lower ratio means your debt is a lower percentage of your total ownership value, which implies that you’re at a lower risk of defaulting on your debt.
• Working capital: Subtract current liabilities from current assets. Positive working capital means you can cover your short-term expenses.

Understanding these metrics can help you identify strengths and weaknesses in your financial situation.

Real-life balance sheet examples

Let’s look at some examples to make it all come to life.

Example of a small business balance sheet

Imagine you own a small coffee shop called ZuZu’s Coffee. Here’s what your balance sheet might look like:

Assets

• Cash: $5,000
• Equipment: $20,000
• Inventory (coffee beans, cups, etc.): $2,000
• Total assets: $27,000

Liabilities

• Accounts payable (bills you owe): $3,000
• Bank loan balance: $10,000
• Total liabilities: $13,000

Equity

• Owner’s equity: $14,000

Total liabilities and equity: $27,000

Notice how the total assets equal the total liabilities plus equity? That’s the balance! 

This balance sheet doesn’t split assets or liabilities out by short-term vs. long-term, but it still gives us some good information. For example, if the company sold all of its equipment and inventory today (also known as “liquidating” a business), it would have roughly $27,000 in cash. That’s more than double the amount it owes, which is great.

The numbers also show that if you decided to liquidate your business today and pay off your business debt, you’d have $14,000 left that you could pocket. That’s another way to think about equity — it’s what the owners would have left if they liquidated everything, paid off the company debts, and closed the business.

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Example of a one-person, self-employed balance sheet

For a one-person operation run by a solo web designer, the numbers might be smaller, but the balance sheet works just the same. Let’s see how that could look:

Assets

• Cash and equivalents: $3,000
• Accounts receivable: $1,500 (payments due from clients)
• Equipment and software: $4,000 (laptop, software licenses, and peripherals)
• Total assets: $8,500

Liabilities

• Accounts payable: $500 (outstanding bills for services like internet, utilities, or subscriptions)
• Long-term debt: $2,000 (a small business loan or credit line)
• Total liabilities: $2,500

Equity

• Owner’s equity: $6,000

Total liabilities and equity: $8,500

Everything’s balanced again. The numbers are a bit lower, but that’s fine. In some ways, this company looks even healthier than the other one because the operation’s assets are more than 3 times its debt.

Just remember, though, that your balance sheet doesn’t show your company’s income or expenses. It’s a literal snapshot in time. To get a complete view of your finances, you’ll also want to take a look at your profit and loss statement.

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Common mistakes in balance sheet preparation

Avoid these pitfalls to keep your balance sheet accurate:

• Omitting assets or liabilities: Double-check to ensure you’ve listed everything.
• Misclassifying items: Be careful to categorize items correctly.
• Mathematical errors: Small mistakes can throw off the entire balance sheet. Use a calculator or software to help.

By steering clear of these mistakes, you’ll have a reliable tool for managing your finances.

Using balance sheets for better financial health

Now that you’re a balance sheet wizard, here’s how to put it to good use:

• Set financial goals: Use your balance sheet to identify areas for improvement.
• Monitor progress: Regularly update your balance sheet to track changes over time.

Make informed decisions: When you’re considering a big purchase or investment, your balance sheet can help guide you toward choices that support your long-term financial goals.