Sample Balance Sheet and Income Statement for Small Business (2023)

8 Min. Read

October 21, 2022

Sample Balance Sheet and Income Statement for Small Business (1)

By examining a sample balance sheet and income statement, small businesses can better understand the relationship between the two reports. Every time a company records a sale or an expense for bookkeeping purposes, both the balance sheet and the income statement are affected by the transaction. The balance sheet and the income statement are two of the three major financial statements that small businesses prepare to report on their financial performance, along with the cash flow statement.

We know that accounting isn’t everyone’s favorite pastime, so we’ve broken down the important information into balance sheet basics to guide you through the process.

With FreshBooks, you don’t need to become an accountant overnight to run your business the way it deserves.

Your balance sheet will be separated into two main sections, cash and cash equivalent assets on the one side, and liabilities and equity on the other. Documenting the financial details of your business will give you a thorough understanding of available cash flows so that you can make informed decisions about the viable future of your business.

FreshBooks provides a range of income statement and balance sheet examples to suit a variety of businesses, no matter if you have just started out or if you are looking for a different solution.

Find the best finance statement templates for you and your business.

These topics will show you the connection between financial statements and offer a sample balance sheet and income statement for small businesses:

What Goes on an Income Statement vs. Balance Sheet?

(Video) The BALANCE SHEET for BEGINNERS (Full Example)

How Do You Prepare a Balance Sheet from an Income Statement?

The Difference Between an Income Statement and Balance Sheet

Sample Income Statement

Sample Balance Sheet

What Goes on an Income Statement vs. Balance Sheet?

The income statement and the balance sheet report on different accounting metrics related to a business’s financial position. By getting to know the purpose of each of the reports you can better understand how they differ from one another.

A balance sheet format can be broken down into two main sections – assets on one side, and liability and equities on the other. These sections will need to be recorded in a balanced format, meaning when an entry is inserted in one column, a corresponding entry will be made in the other column.

What Goes on an Income Statement?

An income statement, also called a profit and loss statement, lists a business’s revenues, expenses and overall profit or loss for a specific period of time. An income statement reports the following line items:

  • Sales: Revenue generated from the sale of goods and services
  • Cost of Goods Sold: Including labor and material costs
  • Gross Profit: The cost of goods sold subtracted from sales
  • General and Administrative Expenses: Includes rent, utilities, salary, etc.
  • Earnings Before Tax: Your business’s pre-tax income
  • Net Income: The total revenue minus total expenses, which gives the profit or loss

The end goal of the income statement is to show a business’s net income for a specific reporting period. If the net income is a positive number, the business reports a profit. If it’s a negative number, the business reports a loss.

What Goes on a Balance Sheet?

A balance sheet reports a business’s assets, liabilities and equity at a specific point in time. A balance sheet is broken into two main sections: assets on one side and liabilities and equity on the other side. The balance sheet formats require the two sides must balance out, meaning they should be equal to one another. It reports the following line items:

  • Current Assets: Assets that will be converted to cash within a year, including accounts receivable, inventory and prepaid expenses
  • Long-Term Assets: Assets that won’t be converted to cash within a year, including land, buildings and equipment
  • Current Liabilities: Debts owed within a year, including rent, utilities, taxes and payroll
  • Long-Term Liabilities: Long-term business loans, pension fund liabilities
  • Shareholders Equity: A business’s net assets, including money generated by the business and donated capital
  • Amortization Expenses: These are also called depreciation expenses, and account for any long-term assets over the life span of their use (such as cars or expensive technology)
  • Account Balances: The amount of money that is in your financial accounts at any given time, after debits and credits have been accounted or. This includes any long term saving accounts or checking accounts.

The balance sheet tells you what your business owns and what it owes to others on a specific date. It gives a snapshot of the business’s overall worth.

(Video) Balance sheet and income statement relationship

How Do You Prepare a Balance Sheet from an Income Statement?

A business’s financial statements are all interconnected and they report some of the same information, but for different purposes. Because some of your financial statements draw from data reported on other statements, there’s a particular order you should follow when preparing them, which is why we have prepared the following financial statement example:

  1. Income Statement
  2. Balance Sheet
  3. Cash Flow Statement

To prepare a balance sheet, you need to calculate net income. Net income is the final calculation included on the income statement, showing how much profit or loss the business generated during the reporting period. Once you’ve prepared your income statement, you can use the net income figure to start creating your balance sheet.

Using a balance sheet template will streamline the next step of the process, so that you don’t have to manually insert all of the fields yourself. This is a vital step towards understanding the core strength of a company, and to assess the business performance.

On the balance sheet, net income appears in the retained earnings line item. Net income affects how much equity a business reports on the balance sheet.

The Relationship Between Income Statement and Balance Sheet

In double-entry bookkeeping, the income statement and balance sheet are closely related. Double-entry bookkeeping involves making two separate entries for every business transaction recorded. One of these entries appears on the income statement and the other appears on the balance sheet.

To have a more thorough look at how double-entry bookkeeping works, head to FreshBooks for a gallery of income statement templates.

Every time a sale or expense is recorded, affecting the income statement, the assets or liabilities are affected on the balance sheet. When a business records a sale, its assets will increase or its liabilities will decrease. When a business records an expense, its assets will decrease or its liabilities will increase.

In this way, the income statement and balance sheet are closely related. Balance sheets will show a more thorough overview of the security and investment health of a business, however they are both indispensable financial statements.

Dummies.com put together this helpful illustration demonstrating just how closely the two reports tie together:

Sample Balance Sheet and Income Statement for Small Business (3)
(Video) How To Read And Understand Financial Statements As A Small Business

The Difference Between an Income Statement and Balance Sheet

The income statement and balance sheet report different financial accounting information about your business. The key differences between the two reports include:

Line Items Reported: The income statement reports revenue, expenses and profit or loss, while the balance sheet reports assets, liabilities and shareholder equity.

Timing: The income statement reports on financial performance for a specific time range, often a month, quarter or year. The balance sheet reports on financial activity for one specific date.

Metrics: The line items on the income statement are compared to the sales figure to find your company’s gross margin, operating income and net income, as percentages. The line items on the balance sheet can be used to understand the liquidity of your business. Recording financial business activities in this section helps keep track of the strength of the company.

Sample Income Statement

This sample income statement from Accounting Coach shows the different figures used to calculate net income, the layout of the report and how it differs from a balance sheet:

To see more balance sheet samples, head to FreshBooks. The blank balance sheet template can be downloaded in a range of formats to suit your preferred software program, from Microsoft Excel and Microsoft Word to Google Docs or Google Spreadsheets.

Accessing balance sheet and income statement software is a surefire way to save you time, stress, and money — as you make the right decisions towards letting your business be the best that it can be.

Sample Balance Sheet and Income Statement for Small Business (5)

Sample Balance Sheet

This sample balance sheet from Accounting Coach shows the line items reported, the layout of the document and how it differs from an income statement:

Sample Balance Sheet and Income Statement for Small Business (6)

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FAQs

What should be included in a small business balance sheet? ›

Gather all financial documents, such as receipts and invoices, pertaining to your business's assets and liabilities. Fill in all amounts of assets and liabilities, with assets on the left and liabilities on the right. Determine retained earnings or equity. Make sure both sides balance out.

What is income statement and balance sheet explain with examples? ›

An income statement assesses the profit or loss of a business over a period of time, whereas a balance sheet shows the financial position of the business at a specific point in time.

What 3 things must be included on a balance sheet? ›

A typical balance sheet contains three core components: assets, liabilities, and shareholder equity.
  • Assets: Assets represent all things of value that belong to the company. ...
  • Liabilities: Nearly all business owners have liabilities, or expenses necessary to keep the business going.
2 Nov 2021

What are the 3 basic parts of a balance sheet? ›

As an overview of the company's financial position, the balance sheet consists of three major sections: (1) the assets, which are probable future economic benefits owned or controlled by the entity; (2) the liabilities, which are probable future sacrifices of economic benefits; and (3) the owners' equity, calculated as ...

What should I prepare first balance sheet or income statement? ›

The financial statement prepared first is your income statement. As you know by now, the income statement breaks down all of your company's revenues and expenses. You need your income statement first because it gives you the necessary information to generate other financial statements.

Can I prepare my own financial statements? ›

But with the help of computer software, you may be able to prepare your own financial statements. If you need to prepare financial statements for a third party, such as a banker, sometimes the third party may request that the financial statements be prepared by a professional accountant or certified public accountant.

How do I prepare an income statement for myself? ›

Steps to Prepare an Income Statement
  1. Choose Your Reporting Period. Your reporting period is the specific timeframe the income statement covers. ...
  2. Calculate Total Revenue. ...
  3. Calculate Cost of Goods Sold (COGS) ...
  4. Calculate Gross Profit. ...
  5. Calculate Operating Expenses. ...
  6. Calculate Income. ...
  7. Calculate Interest and Taxes. ...
  8. Calculate Net Income.
9 Dec 2021

What items should not appear on a balance sheet? ›

Off-balance sheet (OBS) assets are assets that don't appear on the balance sheet. OBS assets can be used to shelter financial statements from asset ownership and related debt. Common OBS assets include accounts receivable, leaseback agreements, and operating leases.

What are the three 3 most important financial statements for a small business? ›

The income statement, balance sheet, and statement of cash flows are required financial statements. These three statements are informative tools that traders can use to analyze a company's financial strength and provide a quick picture of a company's financial health and underlying value.

What should not appear on a balance sheet? ›

The balance sheet reveals a picture of the business, the risks inherent in that business, and the talent and ability of its management. However, the balance sheet does not show profits or losses, cash flows, the market value of the firm, or claims against its assets.

What are the three 3 types of income statement? ›

What Are the Different Types of Income Statements and How Are They Calculated?
  • Single-Step Income Statement.
  • Multi-Step Income Statement.
  • Generate Your Income Statement Using Deskera Books.

What are the 5 main components of the income statement? ›

The income statement presents revenue, expenses, and net income. The components of the income statement include: revenue; cost of sales; sales, general, and administrative expenses; other operating expenses; non-operating income and expenses; gains and losses; non-recurring items; net income; and EPS.

Does cash go on the balance sheet? ›

In short, yes—cash is a current asset and is the first line-item on a company's balance sheet. Cash is the most liquid type of asset and can be used to easily purchase other assets. Liquidity is the ease with which an asset can be converted into cash.

What is the golden rule of balance sheet? ›

Whether you are building a balance sheet or working on an accounting exercise, the golden rule of a balance sheet is that at the end, the following equation must equate: Assets = Liabilities + Shareholders' Equity.

What does a good balance sheet look like? ›

Entities with strong balance sheets are those which are structured to support the entity's business goals and maximise financial performance. Strong balance sheets will possess most of the following attributes: intelligent working capital, positive cash flow, a balanced capital structure, and income generating assets.

What is the basic format of a balance sheet? ›

The balance sheet is based on the fundamental equation: Assets = Liabilities + Equity. As such, the balance sheet is divided into two sides (or sections). The left side of the balance sheet outlines all of a company's assets.

What is the most important thing on a balance sheet? ›

Many experts believe that the most important areas on a balance sheet are cash, accounts receivable, short-term investments, property, plant, equipment, and other major liabilities.

What are the 4 income statements? ›

But if you're looking for investors for your business, or want to apply for credit, you'll find that four types of financial statements—the balance sheet, the income statement, the cash flow statement, and the statement of owner's equity—can be crucial in helping you meet your financing goals.

What expenses come first on income statement? ›

The Income Statement

It's the statement that lists the revenues and expenses for the business for a specific period. Revenues are listed first, and then the company's expenses are listed and subtracted. At the bottom is of the income statement is the total.

What is usually the first item on the income statement? ›

Revenue or sales: This is the first section on the income statement, and it gives you a summary of gross sales made by the company.

What 7 items must financial statements consist of? ›

The Financial Accounting Standards Board (FASB) has defined the following elements of financial statements of business enterprises: assets, liabilities, equity, revenues, expenses, gains, losses, investment by owners, distribution to owners, and comprehensive income.

What is the easiest financial statement to prepare? ›

Perhaps the most useful financial statement, and easiest to understand, is the income statement. The income statement has a separate section for both revenue and expenses, including sales, cost of goods sold, operating expenses, and net profit.

What are the 5 basic financial statements? ›

The 5 types of financial statements you need to know
  • Income statement. Arguably the most important. ...
  • Cash flow statement. ...
  • Balance sheet. ...
  • Note to Financial Statements. ...
  • Statement of change in equity.

What are the 3 most important things on an income statement? ›

Earnings before taxes: This refers to your income before you pay any taxes on it. Gross profit: Calculated by subtracting the cost of goods sold from revenue, gross profit is the profit the company makes. Net income: Net income is the income left over after you subtract all of your expenses from your gross profits.

What is a basic income statement? ›

An income statement shows a company's revenues, expenses and profitability over a period of time. It is also sometimes called a profit-and-loss (P&L) statement or an earnings statement. It shows your: revenue from selling products or services. expenses to generate the revenue and manage your business.

What are the 3 steps for creating an income statement? ›

The following steps will show you how to prepare an income statement.
  1. Step 1: Print the Trial Balance. Go to the accounting software and print the "trial balance" standard report. ...
  2. Step 2: Determine the Revenue Amount. ...
  3. Step 3: Determine the Cost of Goods Sold Amount.
4 Apr 2022

How do I know if my balance sheet is correct? ›

You'll know your sheet is balanced when your equation shows your total assets as being equal to your total liabilities plus shareholders' equity.

What are the 5 elements of balance sheet? ›

The main elements of financial statements are as follows:
  • Assets. These are items of economic benefit that are expected to yield benefits in future periods. ...
  • Liabilities. These are legally binding obligations payable to another entity or individual. ...
  • Equity. ...
  • Revenue. ...
  • Expenses.
2 Apr 2022

Does a sole proprietor need a balance sheet? ›

Double-entry bookkeeping is standard in bookkeeping software and builds both the income statement and balance sheet. Since there is no separation between the person and the business, most sole proprietors don't really need a balance sheet anyway.

What are the 2 most important financial statements of a business? ›

Another way of looking at the question is which two statements provide the most information? In that case, the best selection is the income statement and balance sheet, since the statement of cash flows can be constructed from these two documents.

Which is more important balance sheet or income statement? ›

However, many small business owners say the income statement is the most important as it shows the company's ability to be profitable – or how the business is performing overall. You use your balance sheet to find out your company's net worth, which can help you make key strategic decisions.

What are 2 most important financial statements sheets? ›

Key Takeaways

The balance sheet provides an overview of assets, liabilities, and shareholders' equity as a snapshot in time. The income statement primarily focuses on a company's revenues and expenses during a particular period.

What are the 4 sections of a balance sheet? ›

The balance sheet is divided into four sections: heading, assets, liabilities, and owner's equity..

Which income statement format do I choose? ›

The format you choose depends on the type of business you own and the ultimate purpose of the income statement you're creating. Both single-step and multi-step income statements report on the revenues, expenses and the profit or loss of a business during a specific reporting period.

What is the formula for income statement? ›

The basic formula for an income statement is Revenues – Expenses = Net Income. This simple equation shows whether the company is profitable. If revenues are greater than expenses, the business is profitable.

What are the examples of income statement? ›

The most common income statement items include:
  • Revenue/Sales. Sales Revenue is the company's revenue from sales or services, displayed at the very top of the statement. ...
  • Gross Profit. ...
  • General and Administrative (G&A) Expenses. ...
  • Depreciation & Amortization Expense. ...
  • Interest. ...
  • Income Taxes.
7 May 2022

What is not included in income statement? ›

Theresa Chiechi © Investopedia 2022. The income statement focuses on four key items: revenue, expenses, gains, and losses. It does not differentiate between cash and non-cash receipts (sales in cash vs. sales on credit) or cash vs. non-cash payments/disbursements (purchases in cash vs.

What is the difference between income statement and balance sheet? ›

Balance Sheet vs Income Statement: The Key Differences

Timing: The balance sheet shows what a company owns (assets) and owes (liabilities) at a specific moment in time, while the income statement shows total revenues and expenses for a period of time.

What is cash on hand called for a business? ›

Liquidity is another term for having “cash on hand.” It describes a company's ability to meet its financial obligations – like debt payments, for example – whenever they come due. Essentially, if a company has sufficient liquidity, it has cash available for the short term.

How much cash should be on a balance sheet? ›

The minimum amount of cash you need fluctuates with your business cycle and seasonality. As a general rule of thumb, 3 to 6 months of operating expenses is a good benchmark.

How do you prepare a balance sheet? ›

How to make a balance sheet in 8 steps
  1. Step 1: Pick the balance sheet date. ...
  2. Step 2: List all of your assets. ...
  3. Step 3: Add up all of your assets. ...
  4. Step 4: Determine current liabilities. ...
  5. Step 5: Calculate long-term liabilities. ...
  6. Step 6: Add up liabilities. ...
  7. Step 7: Calculate owner's equity.

Can you make your own balance sheet? ›

To make a balance sheet for accounting, start by creating a header with the name of the organization and the effective date. Then, list all current assets in order of how easily they can be converted to cash, and calculate the total. Next, list all of your short-term and long-term liabilities and total them as well.

How do you make a balance sheet step by step? ›

Whether you're a business owner or an accountant, you can follow these steps to make a basic balance sheet:
  1. Invest in accounting software. ...
  2. Create a heading. ...
  3. Use the basic accounting equation to separate each section. ...
  4. Include all of your assets. ...
  5. Create a section for liabilities. ...
  6. Create a section for owner's equity.

Does a small company need a balance sheet? ›

Every business needs three fundamental financial statements: an income statement, a cash flow statement and a balance sheet. The balance sheet in particular is an invaluable tool. It shows your business's net worth and overall financial health, by recording your assets, liabilities and shareholder's or owner's equity.

What are the 4 parts of a balance sheet? ›

Balance Sheet Example

As you will see, it starts with current assets, then non-current assets, and total assets. Below that are liabilities and stockholders' equity, which includes current liabilities, non-current liabilities, and finally shareholders' equity.

What is a balance sheet for beginners? ›

A balance sheet equation shows what a company owns (assets), how much it owes (liabilities), and how much stake or shares owners have in the business (shareholder's equity). You can calculate it using the following accounting formula: Assets = Liabilities + Shareholders' Equity.

Can you use Excel for balance sheet? ›

You can do that in Excel by clicking on File. Go to the New tab, then in the Search Bar, type Balance Sheet. After a quick search, Excel will give you at least three templates you can use. Alternatively, you can also visit Vertex42, FreshBooks, or Wise.com to download a template from their website.

What are the 2 basic forms of the balance sheet? ›

Balance Sheet Formats

Standard accounting conventions present the balance sheet in one of two formats: the account form (horizontal presentation) and the report form (vertical presentation).

What business is not required to file a balance sheet? ›

Small corporations—those with total receipts and total assets less than $250,000 at the end of the year—are not required to complete the balance sheet in the tax return.

What are the most important headings in a balance sheet? ›

The most common short-term assets are cash (and cash equivalents), accounts receivable, and inventory. Typically, the most significant of the long-term assets are “property, plant and equipment” (also referred to as “fixed” assets), goodwill, and intangible assets.

What is the most important financial statement? ›

The most important financial statement for the majority of users is likely to be the income statement, since it reveals the ability of a business to generate a profit. Also, the information listed on the income statement is mostly in relatively current dollars, and so represents a reasonable degree of accuracy.

What is balance sheet example? ›

A balance sheet is a financial statement that contains details of a company's assets or liabilities at a specific point in time. It is one of the three core financial statements (income statement and cash flow statement being the other two) used for evaluating the performance of a business.

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