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Blog: Business Finances
 Balance sheet is a picture, on a certain day
The Income Statement is the most exciting piece of the financial picture, unless you used to be an auditor. I worked in public accounting for years and I always enjoyed unraveling the story of a balance sheet. For non-accountants, the simplest way to explain a Balance Sheet is that it is a financial story as of a certain day. Most balances sheets are calculated at the end of the month, end of the year or end of an accounting period. On that day, the balance sheets reports how many assets the company owned (tangible and non-tangible), how many liabilities are owed to others and the worth of the equity in the company.
Assets tell a lot about how the company is/has been run. First, there's Cash. Hopefully, there's enough, maybe even investments. Then, Accounts Receivable, what is owed the company from customers. Then, any other Current Assets, such as prepaid (insurance). Current assets represent assets that are more liquid or that may be used in the coming year. Next, Fixed Assets include buildings, equipment or furniture and corresponding depreciation. If it's a manufacturing company there's a lot of equipment. If it's a service organization, like mine, then there might only be office equipment. Depreciation gives you an idea of how old the equipment is. Long-term Assets might include intangible assets like "Goodwill". Goodwill indicates the value of the company or it's assets at a point in time.
Liabilities are not quite as exciting as assets. Liabilities mean you owe somebody something. Of course, vendors and employees have to be paid. Then there might be Debt owned to a bank or some type of lending institution. Agreements that have some type of financial obligation are reported in this section. Finally, Long-term Liabilities.
And finally, there is Equity, simply assets less liabilities. The important thing is to have positive equity. Negative equity is not a good sign.
Of course, the more complicated the business, the more complicated the balance sheet. All the financial statements are governed by GAAP = Generally Accepted Accounting Principles, as well as, a multitude of other authoritative documents and organizations. Good CPA's understand these rules and how to apply them.
posted on: 3/22/2008 11:30:00 AM by Tracie Utter
category: Finances
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Business Finances
by Tracie Utter
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About Tracie:
I am a Professional Organizer that focuses on financial information although I organize homes as well. Prior to organizing, I worked as a CPA for public and private companies as an auditor, controller, project manager and more. Now, I organize full-time with a focus on office organizing (both home and corporate), managing paperwork, managing Quicken/Quick Books and banking. I help people understand what type of paperwork/computer files to keep, how long to keep it and how to store it.
Tracie's Website:
utterlyorganized.net
My Favorite Websites for Small Businesses
- KY Society of CPA's
There is a section "For the Public" that has information related to starting a business. There's also a calendar which indicates when certain financial information is due, such as, taxes.
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1-877-251-8435
www.OnlineOrganizing.com is a service mark of Bradford, LLC.
