What is a Balance Sheet Report?
The balance sheet report shows the overall financial position of the business at a particular point in time, usually at the end of a year or a month.
The balance sheet shows the assets, liabilities and equity of the business. The figures show what your business is worth.
Assets are everything the business owns such as cash at the bank, stock, equipment, vehicles and sales invoices issued but not yet paid.
Liabilities are everything the business owes such as loans and purchases yet to be paid.
The current capital, equity or net worth of the business is calculated as follows:
Capital brought forward from the last period
PLUS any investments or share capital
MINUS any drawings
PLUS the profit /loss (from the P&L report).
The current capital should be the same figure as the total assets minus the total liabilities, hence it being called the balance sheet, as the two figures should be the same.
You can compare balance sheets to see how the assets, liabilities and net worth of the business have improved or not. If the figures have improved do you know why and can you do more to continue the trend? If the figures are worse do you know why and what to do to reverse the trend?
Being able to produce accurate monthly reports, understanding and acting upon them, makes keeping your books in order a very worthwhile part of your business procedures. It could make the difference of whether your business is a success or failure.
- Regularly look through the figures on your Balance Sheet so that you can keep money you owe under control.
- Compare all the figures with previous months or periods.
- Ask your Accountant to explain any figures you don’t understand and what they mean for your business.
Feb 6, 2014