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Business Financials – What is the Balance Sheet – An example and definition

images/Business Financials2.jpgOne of the most important parts of working with our clients at Account Keeping Plus, is to educate and help businesses owners and bookkeepers understand what is the Balance Sheet (also known as the Financial Position) and here we give an example and definition.

Definition –

The Balance Sheet gives us a look at a point in time (eg end of month or year) of the assets and liabilities of the business. In other words, it is a picture or summary of what the business has and how it is funded.

There are three areas in the Balance Sheet – Assets Liabilities and Equity -

Assets include bank accounts, petty cash, inventory, debtors or accounts payable, which are also grouped as Current Assets because they turn over in less than 12 months. Long Term Assets show Plant & Equipment and Motor Vehicles.

Liabilities include credit cards and short term loans, creditors or accounts payable, GST, payroll withholding tax, PAYG and super accounts, which are grouped as Current Liabilities as they also turn over in less than 12 months. Long Term Liabilities show business loans and overdrafts, car loans/finance.

Equity is the difference of assets less liabilities. Sometimes known as net worth  or Shareholder Equity.

Example -

The Balance Sheet is similar to a house with a loan.

The house has a value (Asset), say $450,000 and if there is a loan (Liability) say of $250,000 there would be a net of $200,000 which is also called Equity or net worth.

images/Bal Sht like house.jpg

In a similar way, a business reports these as the Balance Sheet -  Assets, less its Liabilities, leaves Equity (Shareholder’s Equity)

images/Bal Sht summary.jpg

Look for future Posts where we will look at important ratios that can be calculated from parts of the Balance Sheet.

What are your thoughts? Call for FREE30min advice / strategy session today! 0407 361 596 Aust

Email This email address is being protected from spambots. You need JavaScript enabled to view it. or call 0407 361 596 Australia

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Accounting Software Australia, MYOB, Quickbooks, accounts software, bookkeeping software
Accounting Software Australia, MYOB, Quickbooks, accounts software, bookkeeping software
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