A Balance Sheet is an overview of how your business is performing financially at any given time period. It is prepared in one of two different ways.
The first way is by using a General Ledger.
The General Ledger is data from the Income Statement and the Cash Flow Statement (Projection). This is used if your company uses the double entry accounting method. The other way of preparing a balance sheet is to include the assets, liabilities and the equities directly into your Balance Sheet.
Why Is A Balance Sheet Important?
A Balance Sheet is important because it is a total snap shot of your business financial condition at any given time period. The financial condition of your business can change day to day, month to month, year to year etc. You can look at it at any given time period and calculate the exact condition of your business at that specific time period.
How To Read A Balance Sheet?
The Balance Sheet is broken down into three main sections, the Title, the Assets and the Liabilities, the Equities should be included in the Liabilities section.
The Title section is the first section and it includes the company name, the title of the form which is the Balance Sheet and the period of time this Balance Sheet is for.
The next section is the Asset section. The Assets are the items your business has ownership of, this includes items like accounts receivable, inventory, equipment, petty cash, cash at hand, furniture, and so on. All of your assets are in this section.
The final section is the Liabilities section. The Liabilities are the items your business owe, this includes items like, accounts payable, notes payable, loans payable, taxes payable, payroll accrual and so son. All of the liabilities are listed in this section.
How Is The Balance Sheet Calculated?
Assets = Liabilities + Equities
All of the assets should be calculated, then all of the liabilities and the equities, if the assets are more then the liabilities and equities. Your Balance Sheet will have a Net Profit. But on the other hand if the liabilities and equalities are more then the assets you will have a Net loss.
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