Here is an example of a balance sheet. All balance sheets should list the assets in the left column and the liabilities and shareholders’ equity in the right column. This particular balance sheet uses the term stockholders’ equity instead of shareholders’ equity. It’s the same thing. Sometimes, you will see the term owners’ equity or owners’ capital. Note that there are numerous kinds of assets and liabilities. Each category needs to be listed separately on a balance sheet.

Now that you’ve seen the terms on a typical balance sheet, you need to learn what they mean. The Investopedia “Balance Sheet” description is particularly beneficial although numerous online sources will also provide you with definitions of terms on a balance sheet. You should use the list of terms that you are most comfortable with. It’s particularly important that you understand the difference between “current” and “long-term.” Current assets can be converted into cash within one year; current liabilities are due within one year.

All balance sheets should list assets and liabilities from the shortest term to the most extended term. Assets are recorded in the order of their liquidity with assets that can most easily be converted into cash on top. Cash is always listed first. Liabilities are listed in the order they are due from top to bottom. Many balance sheets have two categories each for assets and liabilities with a cumulative sum for current assets, long-term assets, current liabilities, and long-term liabilities. Sometimes, as the example shows, long-term assets and long-term liabilities are divided into categories.

Make sure you have an evaluation of all of your property. A balance sheet could be pointless if you are missing information on some property and/or have inaccurate estimates of the value of other property. The same is true of your accounts receivable, the amount of money your company is owed, and your accounts payable, the amount of money that your company owes. Please note that you are also going to estimate how much your property has depreciated since you bought it.

List your current assets first. They include cash, accounts receivable, inventory, supplies, marketable securities (listed in the example as temporary investments), and prepaid expenses such as rent and insurance. Add the items on this list. Then, list your long-term assets. They include long-term investments, fixed assets such as buildings and equipment, and intangible assets such as intellectual property and what the example calls goodwill, which consists of the value of a company’s name. Add the items on the long-term list. Adding the numbers on the short- and long-term records result in a figure for total assets.

List your current liabilities first. They include accounts payable, wages that you owe, taxes that you owe, and how much money you owe banks. Add the items on this list. Then, list your long-term liabilities such as your company’s bonds payable, mortgage payable, and notes payable as well as taxes that aren’t due for at least one year and the amount of money your company pays into employees’ retirement accounts. Add the items on the long-term list. Adding the numbers on the short- and long-term lists result in a figure for total liabilities.

Subtract total liabilities from total assets. This is the company’s shareholders’ equity. Now, you have to figure out the amount attributed to the individual items in the equity section. How much did you invest in the company when you started it? How much money was invested afterward? These are two possible items in the section. You can also have separate items for different kinds of stock such as common stock, preferred stock, and treasury stock. You can attribute the remaining difference between assets and liabilities to retained earnings, which this article defines as “the earnings of the business that have not been distributed to owners but kept in the company.”

What challenges have you encountered while preparing a Balance sheet for small business?