A balance sheet or statement of financial position provides a picture of the financial status of an entity at a specific period. Generally, it is drawn up at the end of a month, quarter, or fiscal year.

1. General Accounting
Getting Started with
Balance Sheet

2. What is a
Balance Sheet?
2
• Statement of financial position
• Provides a picture of the financial status
of an entity for a specific period
• Shows business owners his/her assets,
liabilities, and net value or equity in the
business
• Illustrates the financial health of business
• Establishes an advanced examination and
determination of the businesses’ worth

3. Preparing a
Balance Sheet
3
• Assets are designated on the left side
while liabilities are indicated in all
businesses in a two-column balance
sheet
• Assets are indicated first, followed by
liabilities and net worth in a one-
column sheet

4. Preparing a
Balance Sheet
4
• Fill out the Current Assets Section,
Fixed Assets Section, and Other Assets
Section on the worksheet
• Compute for the business’ Total Assets
• Fill in the Liabilities Section of the
worksheet
• Determine the Total Liabilities
• Complete the Net Worth Section
• Measure the financial ratios

5. What are
Assets?
5
• Can be classified as current or fixed
• Current assets can be in the form of:
- Cash
- Bonds
- Account receivable
- Prepaid expenses

6. What are
Assets?
6
• Fixed assets are long-term assets that
generate revenue but are kept,
maintained and are not intended for
resale
• Examples are:
- Furniture and fixtures
- Motor vehicles
- Machineries and equipment
- Intangible assets

7. What are
Liabilities?
7
• Possible future economic sacrifices
emerging from current obligations of a
specific entity
• Can be classified into current and long-term
• Current liabilities are services that are
supposed to be carried out or liabilities that
are expected to be settled through the
assets identified in the current section of
the balance sheet
• Long-term liabilities are debts that must be
settled in one or more years

8. Analyzing the
Balance Sheet
8
• Current ratio
- Gauges the financial strength of the
business
- Current Ratio = Total Current Assets /
Total Current Liabilities
• Quick ratio
- Measures the liquidity of an entity
- Quick Ratio = (Current Assets -
Inventory) / Current Liabilities

9. Analyzing the
Balance Sheet
9
• Working capital
- Shows the amount of liquid assets the
entity possesses that can be used in
developing the business and producing
shareholder value
- Working Capital = Total Current Assets -
Total Current Liabilities
• Debt/worth ratio
- Demonstrates the solvency of a business
- Debt/Worth Ratio = Total Liabilities / Net
Worth

10. Good fortune is what
happens when
opportunity meets with
planning.
- Thomas Alva Edison
10
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