What is a balance sheet?
A Balance Sheet is a snapshot of
your business’ financial position on a given day, usually calculated at the end
of the quarter or year. It is a summary of your company’s assets,
liabilities/obligations, and owner’s financial involvement. The Balance Sheet in
your Fresh Books account is just a template, and we do recommend seeking advice
from an accounting professional when creating a new one.
When do I need a Balance Sheet?
A business will generally need a
Balance Sheet when applying for loans or grants, submitting taxes, or seeking
investors. A Balance Sheet is how a business can verify that all their
financial records are in check. There are essentially 3 accounting categories used
to keep track of your finances:
1. Assets
2. Liabilities
3. Owners’s (aka Shareholder’s)
Equity
The way your finances “balance”
is as follows: Assets = Liabilities + Owner’s Equity
What is an asset?
Accounting language: An asset is anything tangible or intangible
that is capable of being owned or controlled to produce value and that is held to
have positive economic value. To a business: Assets include cash on hand (cash
& money in the bank), accounts receivable, reimbursable expenses,
inventory, and any equipment that is of value. In Fresh Books, your
“outstanding” Invoices would be considered accounts receivable. These items are
a great starting point for the Assets section of your Balance Sheet:
Cash on hand: Any money your business has direct access to. That would
include all cash + money in the bank. Accounts Receivable from Fresh Books: The
value of your outstanding invoices as of the balance sheet date. This does not include
any invoices that are still in “draft” status. Fresh Books will populate this
value for you, but you are welcome to change it. Accounts Receivable from other
Sources: Any outstanding money you are expecting to be paid from sources
outside of Fresh Books.
Inventory: Goods and materials that a business holds for the
ultimate purpose of resale. Inventory does not count any items that you have already
sold.
Equipment: Any tangible items of value that you have purchased for business
purposes, but that you are not selling. Check out this FAQ post for more
examples.
Reimbursable expenses: Any expenses that you purchased that you will
be reimbursed by another party. An example of this would be gas required to
travel for business purposes. Click Add or remove Assets for more options.
What is a Liability?
Accounting language : A liability is an obligation or debt of your business
from past transactions or events. To a business: Liabilities are moneys owed by
the business. An example of liability is a loan for your business, accounts
payable, credit cards payable, or taxes you still need to pay. These items are
a great starting point for the Liabilities section of your
Balance Sheet:
Accounts Payable: Money that you owe to other parties for reasons other
than a loan. An example of this would be a received invoice that you have not
paid yet, for a service such as advertising, or electric/telephone bills.
Taxes Payable: Taxes that you owe the government. Current Loans
Payable: The value of any loans from banks/investors that you have not paid
back yet. Long Term Loans Payable: Any long-term loan that you have not paid
off yet.
Credit Cards Payable: The value of your business’ unpaid credit
card debt. Click Add or remove Liabilities for more options.
What is Equity?
Accounting language: Equity is the owner’s claim on the assets of a
business. It represents assets that remain after deducting liabilities. To a
business: Equity is what you put in or take out of the business. Examples of
equity would be opening investments, contributions, owner’s capital or retained
earnings. When you re-arrange the accounting equation, Equity = Assets -
Liabilities. Owner’s Capital and Retained Earnings are a good start for the
Equity section:
Owner’s Capital: Owner’s investment into the company plus the net income
earned by the company, minus any withdrawals made by the owner.
Note: The owner’s bank account
and the business bank account are separate entities.
Retained earnings: Net income which is retained by the corporation rather
than distributed to its owners as dividends.
What is the profit and loss statement?
The profit and loss statement, or
P&L, is a name that is often used for what today is the income statement,
statement of income, statement of operations, or statement of earnings. In
other words, the profit and loss statement reports a company's revenues,
expenses, and most of the gains and losses which occurred during the period of
time specified in its heading. The profit and loss statement's period of time
could be a year, a year- to-date period such as nine months, a quarter of a
year, one month, four weeks, 52 weeks, etc. (A few gains and losses will not be
reported on the profit and loss statement and will instead be reported on the company's
statement of comprehensive income.) Under the accrual basis (or method) of
accounting the revenues and expenses reported on the profit and loss statement
should be: The revenues (sales, service
fees) that were earned during the accounting period, and the expenses (cost of
goods sold, salaries, rent, advertising, etc.) that match the revenues being
reported or have expired during the accounting period
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