Keeping your financial data organized is important for any business. Bookkeeping is one of those tasks that no one looks forward to doing, but it is absolutely necessary in finding success. One of the most vital parts of bookkeeping is the balance sheet. This document is filled with important information that business owners need. Understanding how the balance sheet works can help you as you plan and forecast for your business. Propel Your Accounting is here walk through what a balance sheet looks like and the information that can be found on it.
Understanding the Purpose of a Balance Sheet
A balance sheet is an important piece of financial data that can help you make decisions for your company. It is important for business owners to know what is found in this document and how to implement it into the growth and development of their business. The balance sheet can help you understand the financial position of your company. It is important to know if your company is thriving or struggling and this document can give you the information needed to make decisions moving forward. When business owners have this financial snapshot, it can help them adjust where necessary to find more success. It can also help make adjustments that fix problems impeding their growth. If the owner is thinking of selling the business, a balance sheet can show potential buyers the health of the business as well.
Balance Sheet Equation
When a balance sheet is prepared, there is an accounting equation used to gather the information. It works as follows: Assets= Liabilities + Owner’s Equity. This same equation can be rewritten depending on who prepares it. Other versions may be Owner’s Equity = Assets – Liabilities or Liabilities = Assets – Owner’s Equity. However the equation is written, the end goal is to have a balanced statement. If it isn’t balanced there is more than likely and error in the way it was prepared. Here is a breakdown of the aspects of a balance sheet:
– Assets: These include anything that is owned by the company and can be turned into profit at any time should the company get in financial trouble. This can be things like property, inventory, patents, equipment and more.
– Liabilities: The opposite of an asset is a liability. Liability is something that the company owes. These could be leases, loans, payroll expenses, utility payments and more.
– Owner’s Equity: After the liabilities are accounted for, the owner’s equity is whatever is left over. This is often called shareholder’s equity as well. Usually, the owner’s equity is made up of two things, money and earnings.
Bookkeeping, Accounting, Business Consulting & HR / Admin Services in the United States of America
If you have a hard time making sense of your financial data and bookkeeping is falling behind, you can turn to Propel Your Accounting to help you make sense of it all. We will handle your bookkeeping needs as well as any other accounting needs you may have. Call us today!
