Understanding the balance sheet

Keeping track of your business finances can be simple with the right type of accounting program to help you out. Your balance sheet is one of the most important documents you deal with as it provides you with information about your assets and liabilities. You need to see the balance sheet monthly or at least quarterly to see what type of financial position your company is in.

What does that balance sheet record?
As mentioned above the balance sheet records two very important aspects of the business, your assets and liabilities. You need to know this information as it does help you reflect how much of your personal equity is held by the company. You will be able to see if you have profit or loss pertaining to your personal share in the company and if you need to focus on making adjustments to different areas of the balance sheet in the next quarter.

What is the difference between the income statement and balance sheet?
While the two share some things, they are completely different. The income statement provides information about all products that your company sells and how you convert the business assets into cash. Your income statement allows you to see what you buy and sell like your equipment, rent, securities, etc. Your income statement is basically the day-to-day records of the company. The balance sheet is completely different as it is more of a summary of the financial activity of the business.

What is the sale and expense sheet?
Since there are several reports you will see, you may be wondering how the sale and expense sheet differs from your other sheets. The sale and expense sheet provides information about income from debt and all sources of capital. This report also includes you salaries paid, shareholder disbursements, and other payments.

Understanding account ledgers
Everyday you will deal with your account ledgers. This is just basically the balance of your accounts so you can make sure you are staying out of the red. Your account ledger will also include information about your assets but it also includes your liabilities, expense accounts, and revenue. The account ledger is basically linked to your bank account as it is important for you to reconcile the accounts and make sure everything is correct.

Each different statement serves its own purpose and it is important to make sure you go through each one and make sure they are accurate. They must be included with certain reports that you send to your shareholders like your annual report. Accurate information will allow potential investors to consider investing in your company in order to help you expand your business.

To help you prepare your balance sheet and other financial records, you will need to hire a good financial controller or accountant. You can use some accounting software programs to help, but if you don't fully understand how to read the balance sheet and other financial documents they will not do you a lot of good. Your best option is to hire a good CPA to help you prepare these documents and to provide your shareholders with the information they need.

You must stay on top of your financial records because your investors do have a right to request them at any time. This allows them to make sure their investments are actually making money and looking strong for the future. Using an accounting software program will allow you to keep daily records for the business to make sure you are staying out of the red. You will then need to set up the program to allow remote access for your CPA so they can log in and create your balance sheet and other statements to look over.