Whether you operate a large corporation or a small business, you’ll be required to prepare several basic financial statements at the year-end. These documents will help you gauge the financial health of your company. Also, this set of documents is vital to investors if you’re looking for someone to invest in your company.
Among the various statements you’d need to prepare, one such statement is the balance sheet. The document is vital because it provides you with an overview of your company’s financial standing.
Preparing such a statement requires expertise and experience, and you should look to consult with professional bookkeeping services to help you prepare one. Having said that, let’s take a comprehensive look at this important financial statement.
What Is A Balance Sheet
Your balance sheet outlines the company’s financial position and summarises the business’s assets, liabilities, and equity. For every dollar of assets, there is a subsequent liability or equity. Assets are the resources a business owns to generate revenue, while liabilities are what the company owes to external and internal stakeholders.
As mentioned, assets are a business’s resources that help generate revenue. Assets can be further classified into current, fixed, and other assets. In the current assets subsection, you’ll find all-cash items that can be converted to cash within a year. For example, cash at the bank and closing inventory are good examples of current assets
Fixed assets are a company’s property, plant, or equipment. They are difficult to be liquidated and converted into cash within a year. Your machinery, office space, furniture, and land are fixed assets. Intangible assets such as goodwill, legal rights, copyrights, and trademarks are classified as other assets.
Liabilities are something a company owes, usual money to other parties. Business liabilities can be divided into two broad categories: current and non-current liabilities. Current liabilities are amounts that are due within twelve months. These include a business’s accounts payable, accrued expenses, and other short-term debts.
Non-current liabilities include items that are due after twelve months. Any loans from external parties or current shareholders for the long-term are included in this section. It is important to differentiate between liabilities and expenses, as an error in classification can cause reliability and accuracy issues.
Equity, commonly known as shareholder’s equity, is the amount of money that will be the rightful possession of a company’s shareholders after all debts are paid off, and all assets are liquidated. Equity depicts the overall worth of the business and is an important tool for assessing a company’s financial health in mergers and acquisition decisions. Equity is simple to calculate. It is the difference between the total assets of a company and its total liabilities.
Get Started with AceBiz
As mentioned, it is important to consult a professional accountant when creating your year-end financial statements. If you’re on the lookout for one, check out the accounting advisory services provided by Ace Biz. We provide some of the best accounting and consulting services in NSW. Our experienced accountants will handle all aspects of your bookkeeping, accounting and tax planning needs. Our seasoned accounting, tax & advisory team will provide valuable insights and services that drive business growth. We believe in providing professional, innovative and prompt services. Check out our website to learn more about our services or contact us for further information.