Your company needs to make sure its assets and liabilities are accurately accounted for, and a balance sheet is the resource to do just that. Often called a “Statement of Financial Position,” a balance sheet pulls all the company’s assets, liabilities and owner’s equity to determine the company’s liquidity or current net worth.
A balance sheet is a major part of the greater financial statements report for any business.
The goal is to achieve the formula: Total assets = Total liabilities + Equity
All businesses should have a properly managed balance sheet that details the unique assets, liabilities and equity of their specific industry.
A company’s assets are resources that are acquired and have a measurable economic value.
Assets are typically divided into 2 categories:
Liquid – Cash or easily sold/converted to cash
Non-liquid – Not easily converted into cash assets
*intangible assets may be included in the asset log, but due to the nature of such assets, they are not easily valued. Speak with an experienced accountant for clarification on what is accepted.
All businesses have costs or obligations associated with operating. These costs are defined as liabilities and are usually owed to creditors, stockholders, etc.
Liabilities are divided into the categories of:
Current – Must be paid within a single year
Long Term – Payoff due outside of a single year cycle
After deducting all business liabilities from the assets, a company now has a picture of their Equity or Shareholders’ Equity if incorporated. This can be considered the value of the company. The lower the expenses compared to revenue, then a company will have higher equity and vice versa.
A balance sheet will disclose financial records to creditors and provide a snapshot of the company’s financial position at a given point in time. If a company is looking to upscale, and requires funds to accomplish the goal, then a bank or credit agency will look at the balance sheet to determine if the company seeking support is qualified to repay the debt.
Anyone who has a stake in the financial improvement or current financial operating condition will have a need to review a balance sheet such as:
At C.E. Thorn, CPA, PLLC, we understand the importance of a properly balanced financial report. For over 30 years, we have provided support to local small businesses needing help with accurate bookkeeping and generating income statements. Find out how you can benefit from our expertise.