Balance sheets are integral to every business. The balance sheet is the statement of the financial position of a company at a given point of time. It gives complete information about the assets, liabilities and the net worth of the firm. It is one of the tools to keep track of earnings and spendings by a company. It is considered a cornerstone of the financial statement of a company along with the cash flow statement and income statement.
How Balance sheet helps your business
A balance sheet gives a glimpse into the finances of the company at any given point of time. Analyzing the balance sheet, keeping track of assets, liabilities and the owners’ equity can be used as a tool to make informed decisions about the company. The financial statement is a tool to communicate to you and others about the health of your business. It is an important source of information that will convince investors to consider your company. IT is important for current and future potential investors to know how your business will make use of their investment fund.
Balance sheets can also help you figure out ways to cut your losses and keep away from financial troubles. Not examining a balance sheet might lead your business into financial trouble. The financial statement has information like your long-term assets, money owed to others, the outstanding amount from sources and keeping ahead of the situation. Balance sheets are also an indicator of money lending. The banks as a lender make decisions about additional lending to your business by analyzing your balance sheet.
How does the balance sheet work?
While there are many variables in a balance sheet, the basics come down to tallying or equalizing two sides of the information.
On one side, assets cover everything our business owns. They can be current assets- to be used or converted to cash in one-cycle or they can be noncurrent assets like fixed assets like an office, equipment, properties, bonds and stocks.
On the other side, you have current and non-current liabilities. Former is liabilities are the payments your company has to make in one financial year. The latter is the payments to be made over a longer period of time. Adding liability to equity should balance with the assets. Equity can be owner’s equity or shareholders equity. They are also sources of assets.
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