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Do you know how to read your balance sheets?
There are no two ways about it: it can be hard to decipher a balance sheet. It tracks your incomes and outlays. In other words, it shows you what assets you have and who their owners are. You must keep a close eye on your balances, especially if you want to avoid a premature bankruptcy. That can ruin your life, along with the lives of your business partners, associates, and employees. So, it’s simple, don’t let that nightmare scenario come true. By understanding some of the fundamentals, though, you can easily decode these sheets and grasp what they tell you.
The Breakdown of Every Balance Sheet
Okay, so now we can get down to brass tacks. Income statements are a form of performance analytics: they show you how well your company did over the past month, for example. But balance sheets serve as snapshots of your company’s fiscal wellbeing. A specific date (such as 9/29/2021 is printed on these documents. The end-of-the-month review is typically when one of these sheets becomes important; that said, you can wait until the end of the associated quarter.
Let’s Talk About Your Assets
Assets refer to valuable items in your inventory. An overview of your organization’s assets forms a critical component of every balance sheet. After all, if you don’t know who the owner is, transferring the items back and forth between you, your suppliers, and your vendors can get messy quickly. So what, strictly speaking, does your company control? Money, office furniture, and inventory stock count as viable assets. Accounts receivable also fall under this category. That’s because it tracks who you owe money to and the money you haven’t been able to repay just yet.
And Discuss Your Liabilities
Someone else’s assets, which are by and large out of your control, are categorized as liabilities. Moreover, any debts you’ve accrued are regarded this way as well. Credit card balances, payment schedules, and loan-induced debts are some nerve-wracking examples of obligations that could consume your financial resources faster than you can replenish them. And it’s always better to be on the black side of your ledger than in red.
How Owner’s Equity Affects Everything
The term “owner’s equity” refers to a specific class of assets. These are the assets that you have and are not bound to anyone else. Seed money you bring to the table without being gifted to you by angel investors would count as such equity. In theory, your business venture’s overall value should exceed the book value of your equity.
Trust the Professionals at the Harding Group
Unlike other accounting firms, The Harding Group, located in Annapolis, MD, will never charge you for consultations and strive for open communication with our clients.
Are you interested in business advising, tax preparation, bookkeeping and accounting, payroll services, training + support for QuickBooks, or retirement planning? We have the necessary expertise and years of proven results to help.
We gladly serve clients in Annapolis, Anne Arundel County, Baltimore, Severna Park, and Columbia. If you are ready to take the stress out of tax time, contact us online or give us a call at (410) 573-9991 for a free consultation. For more tax tips, follow us on Facebook, Twitter, YouTube, and LinkedIn.