The balance sheet for your business is generated at the end of an accounting period, usually quarterly and annually. The balance sheet includes the company’s assets, liabilities, stock equity. Balance sheets help you as the business owner to quickly and easily study the trends of your business over time: especially with accounts payable and accounts receivable. The balance sheet and income statement reports are the primary reports used by your lenders such as your bank, investors, and suppliers to determine your financial health and your credit limits.
Your balance sheet shows the financial strengths and weaknesses of your business. Studying your balance sheet with your accountant and management team can help to answer the questions necessary to make important financial decisions.
How strong is our cash flow?
What is the balance of revenue and expenses?
Are the collectible schedules aggressive enough?
Are the payables on time?
Are we in a good position to expand, or should we slow down growth plans?
The business accounting software package you use will contain two main categories subdivided into smaller reports.
1. Total Assets are the monetary value of everything owned by your business after depreciation is deducted. Assets are treated as current or long-term, depending on how quickly they can be liquidated.
Current assets, including checking and money market accounts, and accounts receivable, can be converted into cash within one year’s time.
Fixed assets, such as land, real estate, equipment, machinery, and vehicles used for your business are considered long-term assets because of the time and effort needed to liquidate them.
2. Total Liabilities include all debts and accounts payable to banks, vendors, suppliers, and shareholders. Liabilities are also divided into current and long-term.
Short-term liabilities are those due in less than a year
- Accounts payable reports reflect all of your short-term obligations to your creditors for supplies and materials.
- Notes payable include debts due in less than a year such as mortgage payments and car loans.
- Payroll and tax withholding accounts are amounts owed to your employees that have not yet been paid to them or to your governmental taxing authority.
Long-term liabilities are those due one or more years from the date of the balance sheet report.
- Mortgage notes that are due after the current year.
The equity owed to the owner or the stockholders.
- Common stock issued.
- Reinvestment earnings.
Depending on the size and structure of your business, all of these sub-categories may or may not apply. Additionally, your business may need additional reporting capabilities such as depreciation expenses and amortization of assets over a future time period. However, a comprehensive small business accounting software package will assist you in the record keeping and report generating activities needed to keep your business financially healthy.