BUSINESS Demystifying Your Balance Sheet shares and/or 2) possibly to receive dividends (portions of prof- its distributed to shareholders). Dividends are typically taken as either checks or reinvested to purchase additional shares. In addition to the original start-up and any later capital in- vestments, as the company’s net income increases each year, this will cumulate over the years to increase the retained earnings. But if the company incurs losses or distributes any dividends, these activities reduce or dilute the retained earnings. Notice that the nomenclature is not “earnings” but rather “retained” earnings because it’s a cumulative “net” number. In Figure 6, take a look at what a summarized business’s bal- ance sheet might look like, including some numbers. Conclusion The balance sheet is one of the two primary financial statements that you’ll need to manage your corporate business and com- ply with taxing authority requirements. Whereas the income statement (P&L) keeps score of performance for a one-year pe- riod (like a football season) and then resets all over again for the next year, the balance sheet provides a cumulative picture BALANCE SHEET | XYZ COMPANY | As of December 31, 2020 2020 2019 ASSETS: Cash & Equivalents Accounts Receivable Inventory Prepaid Expenses Current Assets Other Assets Fixed Assets - (PP&E) $100,000 $200,000 $80,000 $30,000 $410,000 $50,000 $500,000 Less Accumulated Depreciation ($250,000) Net Fixed Assets $250,000 Total Assets LIABILITIES: Accounts Payable Accrued Expenses Current portion of debt Income taxes payable Current Liabilities Long-Term Debt Capital Stock Retained Earnings Shareholders’ Equity Total Liabilities and Equity $710,000 $125,000 $20,000 $25,000 $50,000 $220,000 $200,000 $50,000 $240,000 $290,000 $710,000 Figure 6. A full balance sheet might look something like the above. 28 KEYNOTES MAY 2021 WWW.ALOA.ORG $90,000 $190,000 $70,000 $30,000 $380,000 $55,000 $500,000 ($240,000) $260,000 $695,000 $112,000 $23,000 $25,000 $50,000 $210,000 $225,000 $50,000 $210,000 $260,000 $695,000
