A balance sheet summarises the financial position of your business at a point in time, by providing a snapshot of how much you own and how much you owe.
There are three key sections to a balance sheet:
- Assets: Items the business have that are of benefit to the business. Current assets are usually cash and any stock and people owing money to the business, non-current assets usually means buildings, land, and furniture.
- Liabilities: These are items that the business has committed to purchasing in the future. Current Liabilities are things like credit cards and supplier accounts payable soon, where as non-current liability is a long term mortgage or bank loan.
- Equity: I like to think of this as the balance that is left over after the other two. It is divided up into capital – which is money someone has put into the business, and retained earnings- this is profits/losses carried from previous years.
A balance sheet like its name must balance. That is Assets minus Liability equals Equity. These can end up being very complex or rather simple depending on your business. Here is how I learned to do a Balance sheet
Assets =Liability Plus Equity
These reports are usually completed by your Accountant or Bookkeeper, or accounting software package. To get a more relevant explanation on what all yours means contact Open Bookkeeping
1300 257 117.