A Balance Sheet provides a financial snapshot of a company at a specific date. This statement details the company's assets, liabilities and owner's equity.
Assets are things, that a company owns, that have value. An asset is also that which is owed to a company such as accounts receivables. Assets include tangible items such as buildings, vehicles, equipment, tools and inventory. However, tangible property is not the only thing that can be classified as an asset; intangibles such as trademarks, patents, research and development, and goodwill are also included in the category of asset. Remember that cash is an asset. So, anything of value that is owned or due to the business should be included as an asset on the Balance Sheet.
A liability is everything that a company owes others. This includes money that a company might owe a supplier, payroll that is owed to employees, taxes owed to local, state and federal tax agencies, and money owed to banks or other lending institutions for loans or credit card balances. This list is not all-inclusive as there are many financial obligations that fall in the liability category on the balance sheet. I have just included a few of the most common ones found on balance sheets of small businesses.
In a nutshell, Owner's Equity represents the money that would available to all the owners if the company sold all of its assets and paid off all of its liabilities. Equity increases when owners invest money into the company and/or when the company shows a profit and retains those earnings in the company instead of paying those earnings out in a dividend. Equity is often called owner's equity, shareholder's equity, capital or net worth.
The following formula represents the balance sheet:
Assets = liabilities Owner's Equity
Understanding the balance sheet and monitoring its changes will help a business owner understand important trends in the business and help he/her make better decisions.
Luke Adams ? President InFront Finance 8/23/06
https://www.infrontfinance.com
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