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A balance sheet differs from a profit and loss statement because the balance represents the financial strength of a company at a specific point in time. Lenders use balance sheets to judge the financial well-being of a company when considering a loan application. Creditors often require a balance sheet prior to extending a line of credit to a company. The balance sheet is a straightforward assets and liabilities list. The assets and liabilities on the sheet must be equal so that when liabilities are deducted from the value of the company assets the result is zero.
Create a balance sheet using spreadsheet computer software or use a paper balance sheet. Write the heading "Assets" on the left side of the sheet. Write the heading "Liabilities" on the right side of the sheet.
List all cash assets under the heading "Assets." Include cash in hand and checking account and savings account balances. List each physical asset below the cash assets. List only those assets that are actually used for your business such as computers, printers, automobiles, furniture and product inventory. Include the value of intangible assets, such as goodwill and company branding below the physical assets.
List current liabilities such as accounts, interest and wages payable under the "Liabilities" heading. Add long-term liabilities including bonds and loans under current liabilities. Include owner or stockholder equity under the long-term liability section.
A balance sheet must always equal zero when liabilities are deducted from assets. If your balance is not zero, then do a line by line comparison of assets to liabilities to find and correct the error.
Always use accurate amounts when listing physical assets and liabilities. You may estimate intangible assets, but as close to actual value as possible.
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