17 Nov Balance Sheet Overview
According to basic accounting theory, a Balance Sheet is assets = liabilities + equity. The balances are an accumulation of the activity in a certain account from the business to a certain date. The Balance Sheet is a snapshot of the financial status of a business at a specific point in time. Unfortunately most business owners skip this important tool and jump right to the bottom line of the income statement to judge the financial health of the business. This is unfortunate because the information contained in the balance sheet can offer clues as to what is happening in the business. Are your assets sufficient to satisfy your liabilities (i.e. a positive equity balance)? Do the various account balances look reasonable? How liquid are the assets? How highly leveraged are you (i.e. current v. long term debt)? Do you understand what the various accounts are and how to control them?
Some common changes that would be handled in Excel might include:
· Removing the date reference at the top of the column;
· Moving Accounts Receivable to the Other Current Asset section;
· Moving Undeposited Funds to the Checking/Savings section (and changing the name to Cash on Hand, or including with the bank balance as a deposit in transit);
· Combining the Accounts Payable, Credit Card and Other Current Liability sections;
· Depending on the legal structure of the business, modifications may need to be made in the equity section; and
· Adding notes (or a reference to notes) to the face of the statements.