A balance sheet is a picture of the financial condition of a firm on a specific date.

This is an accounting statement which illustrates the value of the assets, the liabilities, and equities (net worth) of the franchisor at a specific time. The balance sheet is simply a "snapshot" of the franchisor's organization at a specific time. It follows the basic accounting equation:

Assets = Liabilities + Owner's Equity

This statement has two counterbalancing sections: (1) assets (what the business owns), equals the (2) liabilities (what the business owes), and the owner's equity (owner investment capital). The assets are placed on the left hand side of this "T" account format and equal the liabilities and owner's equity which are placed on the right hand side. In a one-column statement, the assets are listed at the top and equal the liabilities and equity which are placed on the bottom.

The assets of any business are divided into two major categories: current assets (consisting of cash, accounts receivable, and inventory) which can be converted into cash within one year or within the company's normal operating cycle. The fixed assets are those assets required for long term use in a business and are not generally for resale. Fixed assets would include such things as land, building, fixtures, and furnishings. In addition, intangible assets include items that, though valuable, do not have a tangible fixed value but their value may be included on a balance sheet, such as good will, copyrights and patents.

The other side or second section of the balance sheet includes the businesses liabilities -- what the franchisor owes the creditors. Current liabilities are debts which should be paid within one year. Long term liabilities are those liabilities that come due after one year and generally include such things as mortgages, notes payable, and other long term liabilities.

The equity portion of the accounting equation is called the net worth of the business. This is the value of the owner's investment in the business. Equity is also figured by subtracting the liabilities from the assets of the company which yields the equity or net worth of the company. 

Net Worth = Assets - Liabilities 

In the franchisor corporation, the owners or shareholders are persons that have invested capital (as cash or other assets) into the business and have received shares of stock in return. The corporation's equity is simply some of the contributions made by the stockholders plus retained earnings of the business over a period of time.