Understanding your finances is a vital part of running your business. But getting down into the nitty gritty of the entity’s accounts isn’t every entrepreneur’s top skill. If you are new to accounting, or simply want to expand your knowledge, we can help explain the foundational reports.
The balance sheet is a key report when it comes to getting in control of your entity’s financial health.
What’s the balance sheet?
The balance sheet gives you a snapshot of your entity’s financial health at a given point in time, based on the following accounting equation: ‘Equity = Assets – Liabilities’
The balance sheet shows shows you the entity’s:
- Assets (the things the entity owns, including cash)
- Liabilities (the things the entity owes other people)
- Equity (retained earnings plus the funds you originally invested as shareholders)
The balance sheet is best seen as a ‘screenshot’ of your current finances. In a nutshell, it shows you what the entity is worth on paper right now, based on the current numbers in your accounts. So it’s a vital tool in your accounting toolbox.
The balance sheet is helpful for:
- Assessing the current financial position of the entity
- Providing evidence of your financial position to banks, lenders and investors
- Giving potential buyers an idea of the entity’s tangible net asset value, if you plan to sell up.
Talk to us about expanding your accounting skills
If you don’t know your assets from your equity, we don’t blame you. Accounting can be complicated and it takes time to fully grasp all the different terms and processes.
But if you’d like to know more about the basics of your entity’s accounts, we can help. We’ll be happy to run you through your latest management or statutory accounts and explain exactly what each report means – and how it reflects your current performance as a business.
Get in touch to find out more about your accounts.