A balance sheet is one of the core financial statements used to assess a business’s financial health, alongside the income statement and cash flow statement. It provides a snapshot of your business’s finances at a specific point in time by showing what you own (assets), what you owe (liabilities), and what’s left over (equity).
At JBS Corp, we help small business owners not just understand their balance sheets, but use them to make confident, informed decisions.
Too Long; Didn’t Read
- A balance sheet shows assets, liabilities, and equity
- The Assets = Liabilities + Equity equation must always balance. If not, there may be a data entry or classification error.
- We recommend using an accounting software like Xero to view your core financial statements.
What Does a Balance Sheet Show?
A balance sheet breaks down into three key parts:
- Assets: Everything the business owns (cash, inventory, property, accounts receivable, etc).
- Liabilities: What the business owes (loans, credit card debt, payroll, and taxes).
- Equity: The remaining value after subtracting liabilities from assets. It includes owner contributions and retained earnings.
These are tied together by the fundamental formula:
Assets = Liabilities + Equity
This equation must always balance. A well-organized balance sheet shows whether your business can cover its debts, how much you’ve reinvested, and whether you’re financially growing or overstretched.
How to Read a Balance Sheet
Start with the current assets, such as cash and accounts receivable, which are listed at the top. Below that, you’ll find non-current assets like property or equipment. Then, compare them to current liabilities (due within a year) and long-term liabilities (due after a year).
Next, review the equity section, which typically includes owner contributions and retained earnings.
Some key things to look for:
- Does it balance? If not, there may be a data entry or classification error.
- Liquidity: Can your current assets cover current liabilities?
- Debt levels: A high debt-to-equity ratio may be a red flag.
How to Make a Balance Sheet
You can create a balance sheet manually, but accounting software like Xero makes the process faster and more reliable. It automatically pulls data from your bank feeds and transactions to generate balance sheets in real time.
Using Xero looks like this:
- Set up your chart of accounts and bank connections.
- You (or your bookkeeper) categorize your transactions.
- Your balance sheet updates automatically and is always audit-ready.
Let JBS Corp Help
At JBS Corp, we support small businesses with full-service bookkeeping, financial reporting, and advisory services. Whether you’re just starting out or looking to clean up your books, we help you build the financial foundation you need to grow.
Want to understand your balance sheet and use it to your advantage? Let’s talk.
