Accounting for your company’s assets and liabilities is critical for the success of your company. That is why balance sheets are especially useful. 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 which documents 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:
*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 acceptable.
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:
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 assisted local small businesses with proper bookkeeping practices and generating income statements. Find out how your company can benefit from our financial services.