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The balance sheet (also known as the Statement for Financial Position), provides you with the "net worth" of your business' assets and liabilities at a certain date. It is useful when evaluating the efficiency of your business in using its financial resources for operating purposes. To summarise how a balance sheet is calculated is the accounting equation:

Equity = Assets - Liabilities

The balance sheet consists of the following three main elements:

• Assets: Assets are items that your business owns with commercial value.  For example, business equipment, bank accounts or inventory.
• Accumulated Depreciation: is used as a contra-asset account to non-current assets.  It reflects the amount consumed of a non-current asset to date.
• Liabilities: A liability is any existing obligation the business has to its creditors.

Assets and liabilities can be further classified into current and non-current. 

As a rule of thumb, current means those assets and liabilities held for less than 12 months, and non-current are those assets and liabilities held by the business for over a 12 month period.  However, this may change to suit your business's business cycle.

Equity is the leftover amount after deducting all the business' creditors' claims in the forms of liabilities to business assets from total assets. The business creditor's claims to your business' assets take legal precedence over business owners' claims.

To assist you in developing your balance sheets, you can download the following sample templates:

• 12 month balance sheet
• 5 year balance sheet