There are a few components to every business that business owners should have a good grasp of, assets, liabilities and equity. These numbers can help ensure you have a solid foundation in accounting and making crucial business decisions moving forward. You might be wondering how these numbers could be so crucial. Propel Your Accounting is here to talk about why these numbers are such an important part of running your business.
Understanding Assets
If you don’t understand assets, it’s time to familiarize yourself with this term. This is going to be anything that your company has that is contributing to a positive dollar amount. There are several things that can fall into this category including cash, vehicles, inventory, patents, investments, and accounts receivable.
Understanding Liabilities
All businesses have liabilities which is financial responsibilities to other people or entities. For many, they are necessary to run and grow their businesses. Some examples of what we mean include short or long-term loans, accounts payable, equipment financing, leases or mortgages, notes and bonds payable, dividends due to owners, and taxes.
Understanding Equity
When equity is mentioned, it is referring to the owner’s value in the company. Whether this is an individual person or a group of shareholders, this term can be thought of as the value that would be left behind if the company were to go bankrupt today and the assets had to be liquidated. That equity would be used to pay all the liabilities and then would be distributed to all the owners.
What is the Accounting Equation for Assets Liabilities Equity?
Theses three components are so vital to a business because they are the components that make up the accounting equation. This plays an integral role in balancing your books. The accounting equation is something that all business owners should know and understand. In the accounting equation, assets should always equal liabilities plus equity. These components become crucial when you’re interested in things like taking out a new load for your business. This is going to be a new liability, and you need to know whether or not it will still balance out within your budget for your business. That is where the accounting equation can come into play and be of real value to you. Everything in business is about balance. You need to make sure you can balance the books in order to be successful.
Bookkeeping, Accounting, Business Consulting & HR / Admin Services in the United States of America
It is vital for all business owners to thoroughly understand where their business stands financially through assets, liabilities, and equity. If you are struggling to balance your books and grasp the full picture of your business’s financials, you can turn to Propel Your Accounting to help it all make sense. We will handle all of your bookkeeping needs so that you can focus on other aspects of running your business. You won’t have to worry about the accounting side of your business. Call us today!
