What is a Balance Sheet ?
The balance sheet captures the overall results of all the business decisions made by management since the company began operations .
By definition , the balance sheet must balance — meaning that equity , or net worth , is a residual amount . This residual represents what shareholders would receive if all the company ’ s assets were sold and all liabilities were settled at their book values . This residual is the result of balancing the three categories contained in this report by subtracting the company ’ s liabilities from its assets using this equation :
Assets – Liabilities = Shareholder / Owner Equity
1 . ASSETS : What You Own l
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Current Assets : These are like the business ’ s pocket money . They include cash , bank accounts and possessions that can be quickly turned into cash , like accounts receivable ( money customers owe you ) and inventory ( products and supplies ). Fixed Assets : Think of these as the long-term investments . It includes things like equipment , such as a body contouring machine or laser equipment , along with furniture and property owned by the spa .
Just as spa treatments enhance well-being , assets contribute to the financial strength and vitality of your business .
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Long-Term Liabilities : This is money you owe for a longer period , like a business loan or mortgage .
In spa lingo , liabilities are tension or stress points that need attention .
3 . EQUITY : Owner ’ s Stake Equity represents the owner ’ s interest in the business . As represented at left , it ’ s calculated as the difference between assets and liabilities . In practical terms , think of it as the ownership stake in the spa . Equity holders are entitled to what remains after all the company ’ s debts and obligations are paid off . This is why equity is often referred to as a residual claim , as it comes after all other obligations have been fulfilled .
Owner ’ s equity is like the spa-goer ’ s sense of relaxation and rejuvenation after experiencing treatments .
Below is a simplified balance sheet designed specifically for a spa business . Please note this is a general template , and the specific categories and amounts will vary depending on the individual spa ’ s financial situation .
This example will give you a sense of how to structure it :
2 . LIABILITIES : What You Owe l Current Liabilities : These are like your short-term bills . It includes things like accounts payable ( money you owe to suppliers ), accrued expenses ( expenses you haven ’ t paid yet ) and any short-term loans or lines of credit .
SEPTEMBER 2024 n PULSE 29