The Balance Sheet allows operators to forecast short and long-term cash flow. As important as it is to review the Balance Sheet , few restaurants ever bother to prepare it. By checking the accuracy of the Balance Sheet, an operator can ensure the accuracy of the Income Statement . The Balance Sheet lists all the assets, liabilities and equity of the restaurant. In the simplest terms, assets are what the business owns such as equipment, inventory or cash.
Liabilities are what the business owes such as vendor bills, loans, notes and leases.
Even a gift certificate is a liability because the restaurant owes someone a meal at a future date. Equity is the ownership of the business. The most common form of equity is stock. Whoever owns the stock owns the equity. It is important that assets and liabilities are properly classified on the Balance Sheet .