THE BALANCE SHEET SUMMARIZED:

The balance sheet is a tool used to determine or communicate the profitability of a business venture. It consists of four main components, each having sub-components. Below summarizes each component and sub-component of the balance sheet.

Component 1 - the Heading is made up of three (3) parts;

1.   The name of the company
2.   The type of statement following (Balance Sheet)
3.   The Date of the Balance Sheet

Component 2  -  the Assets are made up of three (3) parts;

1.   Current Assets
2.   Fixed Assets
3.   Total Assets

Component 3  -  the Liabilities are made up of three (3) parts;

1.    Current Liabilities
2.    Long-term Liabilities
3.    Total Liabilities

Component 4  - the Equity depends upon the type of business you plan to register;

1.   Capital (for a sole proprietor or partnerships)
2.   Shares (for corporations)
3.   Retained Earning (for corporations)
4.   Total Equity

Existing business owners develop their balance sheet using actual transactions made during their day to day business operations. If, however, you are not an existing business owner and plan on establishing a business, you will be required to construct annual forecasted balance sheets for three years into the future. This will enable you, as a potential business owner, to estimate the items your business anticipates to "own" in each of the three forecasted years as well as how much your business anticipates to "owe" in each of the three forecasted years. By developing a forecasted annual balance sheet for three years into the future, you and investors will be able to determine if your proposed business provides an opportunity.

Whether you are an existing business owner or an aspiring entrepreneur, it is imperative to fully understand the components and principals of the balance sheet. This section discussed the components and principals of the balance sheet. It didn't show you how to develop forecasted balance sheets; that is discussed in the section entitled Developing Your Own Forecasted Financial Statements. Before you begin developing your forecasted balance sheet, be sure you understand the components discussed in this section.