Companies use balance sheets to track their assets, liabilities and owner's equity. Assets are what the company owns. Liabilities are the amounts the company owes. Owner's equity is the amount owners put into the business. It is important to remember that your balance sheet must balance. This means your assets equal liabilities plus owner's equity. These amounts can never be uneven. If they become uneven, then you have a problem with your journal entries after the business starts.
Write out every asset of the company and how much each asset is worth. For example, assume you have $500 of cash in the business, a car currently worth $5,000 and property worth $100,000. You would list each of these under "assets" on your balance sheet.
Write out any debt your company currently has in relation to the assets. In the example, assume you have $75,000 of debt with the company due in five years. You would write out long-term debt with $75,000. Remember, liabilities are broken into two categories: short-term and long-term debt. Short-term debt is anything due in less than a year. Long-term debt is anything due in more than a year.
Subtract your total liabilities from your assets to calculate your owner's equity. This is the amount an owner would put into the company. In the example, $105,500 minus $75,000 equals $30,500 of equity. So of all the assets, $30,500 was given to the company by the owner.
- In formatting the balance sheet, you can have assets on the left side and the liabilities and owner's equity on the right side. You can also just list them out, but the order is always assets, liabilities and then owner's equity.
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