The Balance Sheet, Line by Line

The Balance Sheet shows what the company owns (Assets), what it owes to others (Liabilities) and what it owes to the owners (Owners' Equity). Think of Owners' Equity as what's left after subtracting Liabilities from Assets.

Assets = Liabilities + Owners' Equity

The P&L shows your sales, Cash Flow shows your cash, and the Balance Sheet shows your obligations. Think of it as the future. A useful convention: current items (due or usable within 12 months) sit on top, so you can find them fast. Here is the sample company at the end of its month:

Assets

Cash and Equivalents. The End of Period cash from Cash Flow: your cash plus short-term holdings that turn into cash right away.

Accounts Receivable. The total you're waiting to collect from customers. Inventory is the dollar amount of inventory you have on hand.

Intangible Assets. What you originally paid for all your trademarks, licenses and patents. Accumulated Amortization is the total amortized so far, and Net Intangible Assets is the first minus the second.

Fixed Assets. What you originally paid for computers (typically depreciated over 5 years), Furniture, Fixtures and Equipment (7 years) and Leasehold Improvements (15 years). Accumulated Depreciation is the total Depreciation so far, and Net Fixed Assets is the first minus the second.

Total Assets. Current Assets plus Net Intangible Assets plus Net Fixed Assets. The first half of your Accounting Equation.

Liabilities

Accounts Payable. The total you owe your vendors.

Accrued Interest. Interest that has built up on Convertible Notes that haven't converted yet.

Short-Term Debt. The balance of loans under 12 months, plus outstanding Convertible Notes.

Current Portion of Long-Term Debt. The principal due on your Long-Term Debt in the next 12 months.

Deferred Revenue. Future months' revenue on annual subscriptions you've already been paid for. It's a Liability because you still owe the customer the service.

Long-Term Debt. Your debt balance beyond 12 months, minus the Current Portion. Total Liabilities is Current plus Long-Term.

Owners' Equity

Preferred and Common. Stock for a C Corp, Shares for an S Corp, Membership Interest for an LLC. Preferred is usually investors; Common is mostly founders.

Retained Earnings. One of the coolest lines in your statements. It's the sum of all the Net Income or Net Loss since you started the company, minus everything ever paid to the owners as Dividends or Distributions.

Total Liabilities and Equity. Everything the company owes to others and to owners. The second half of your Accounting Equation, and it always equals Total Assets.