Balance Sheet Study Guide
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 1st (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.