There is often a whole lot of financial data involved in owning and running your own business. It is important that you understand what all the data means so that you can make insightful decisions to grow your business. One important financial document that all business owners need to understand completely is the balance sheet. This important document can tell a business owner a lot about where they stand financially. Mark Dicus & Company is here to explain what the balance sheet is and how it can help your business grow.
The Purpose of a Balance Sheet
The beauty of an accurate balance sheet is that it can provide insight into a company. This document is designed to communicate the worth of a company. A balance sheet is often drafted on a monthly or quarterly basis. When prepared accurately, it will provide a clear picture of the company’s assets, liabilities, and owner’s equity. This provides the owners and investors information communicating the success or failure of the company. When a balance sheet is provided, owners are able to make necessary adjustments and tweak certain practices that can help provide new opportunities for the company.
The Balance Sheet Equation that Measures Success
There is an accounting equation that is used to organize the financial data that make up the balance sheet. This is done using the following equation: Assets= Liabilities + Owner’s Equity. This is the way that the information is most commonly organized on a balance sheet. However, there are a couple of other ways that you can get to the same conclusion including, Owner’s Equity= Assets – Liabilities or Liabilities= Assets – Owner’s Equity. No matter what equation is used, there should always be balance in the information provided. If there isn’t balance in this document, it often means that it wasn’t prepared correctly and there is an error somewhere. Here is a closer look at each of these elements of the equations:
– Assets: This is anything that is owned by the company and holds value. If the company needed to, it could convert an asset into cash. Assets are typically categorized as a positive (+) in a balance sheet. Assets include property, inventory, trademarks, patents, equipment and more.
– Liabilities: A liability is the exact opposite of an asset. This is something that the company owes. This could include things like rent payments, payroll, debt financing, loans, leases and more. These are tallied as a negative (-) on a balance sheet.
– Owner’s Equity: This is often referred to as shareholder’s equity as well as owner’s equity. It is anything that belongs to the owner after all liabilities are accounted for. When you add up what a business owns (assets) and subtract what the business owes (liabilities), you end up with the owner’s equity.
Bookkeepers, Accountants & More in Summerlin, North LV, Henderson, Lone Mountain Village & Greater Las Vegas, Nevada
If you are struggling to understand the financial data for your company or need help compiling it all, you can turn to Mark Dicus & Company for our bookkeeping and accounting services. Call us today!