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How to understand balance sheetsIn every business the main goal is to bring in more money; higher profits.But if you don't have a way to keep track of the money then what good does the money do for you.No budget reports, no financial statements, no nothing.This is where balance sheets come into play.A balance sheet is a report of the resources or assets that a business has.It gives you a view of what the business owns and also what is owned to other outside sources.It is also sometimes referred to as a profit and loss account.Know how to understand one will help you make better financial decisions.Here are some tips on how to understand balance sheets so you can keep your business out of the red.
A balance sheet does three things: It shows you a compiled review of what property (if any) the business owns, how much money it has, and also how much the business owes to others.The main formula behind balance sheets looks like this:assets= liabilities + shareholders' + equity Knowing your assets is important in understanding a balance sheet.Assets are what the company uses to operate its business.Knowing the types of assets is also important when it comes to business and finance.
Knowing the different liabilities
Shareholders' Equity is the initial amount of money that a business has invested.If a company decides to reinvest at the end of the fiscal year then the net earnings will be transferred from the income statement to the balance sheet.This represents the company's total net worth. The balance sheet is an important tool for investors and company's to understand.The balance sheet is a snap shot at a single period in time of a company's accounts.Its purpose is to give users a good idea of where the company stands financially.
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