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This study guide provides instructions on creating a cost basis and market value balance sheet as the foundation for financial statement analysis. The guide emphasizes the importance of updating the balance sheet annually and using it as a financial bookend to analyze business activities. Various spreadsheet templates are suggested for ease and accuracy.
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¾ The Balance Sheet is the foundation of all other financial statements. The logical order for developing financial statements is to start with a good Cost Basis and Market Value Balance Sheet at the beginning of the fiscal period that can be analyzed, update the balance sheet at the end of the period, then use the two balance sheets as financial bookends to analyze the business that took place during the fiscal period.
¾ The suggested order to develop the Cost Basis and Market Value Balance Sheets is to first complete the spreadsheet file, then transfer cost information to the accounting program. Market values can also be entered in the accounting program if possible. Call lenders and accountants regarding questions about loan balances and cost of assets.
¾ When constructing the balance sheet use the mentality that the business will be sold on the day that the balance sheet is developed. This will provide the most realistic values for all assets. An accurate balance sheet should be developed one time per year on the same date every year.
¾ Various spreadsheet templates are available to compile an accurate balance sheet. If your lender has a particular format that is preferred request a copy of it. The beauty of a computerized balance sheet is the ease of maintaining it so it is always current. Save one as of January 1 st^ (or the date of your choice) and then save another one that you can update as things occur throughout the year. Then with a quick review it is available and accurate without hours of work.
¾ The final step of business analysis includes the development of the Accrual Income Statement, the Statement of Cash Flows, and the Statement of Owner Equity. This explains why it will take one complete fiscal period to implement an accurate analysis process. An accurate balance sheet is constructed at the beginning of the period and the analysis is finalized at the end of the period.