What You Put in a Business Balance Sheet
6 of 11 in Series: The Essentials of Keeping Your Business Accounts
A balance sheet is the financial condition of your business at an instant in time. In your business balance sheet, you must put financial information that's in constant motion because the activities of the business go on nonstop. A business doesn't shut down to prepare its balance sheet.
The activities, or transactions, of a business fall into three basic types:
Operating activities: This category refers to making sales and incurring expenses, and also includes the allied transactions that are part and parcel of making sales and incurring expenses. For example, a business records sales revenue when sales are made on credit, and then, later, records cash collections from customers.
Keep in mind that the term operating activities includes the allied transactions that precede or are subsequent to the recording of sales and expense transactions.
Investing activities: This term refers to making investments in assets and (eventually) disposing of the assets when the business no longer needs them. The primary examples of investing activities for businesses that sell products and services are capital expenditures, which are the amounts spent to modernize, expand, and replace the long-term operating assets of a business.
Financing activities: These activities include securing money from debt and equity sources of capital, returning capital to these sources, and making distributions from profit to owners.