Donna Reade

QuickBooks Online Consulting & Bookkeeping

Accounting Reports: What is a Balance Sheet?

009-The-Balance-SheetAccounting reports take the data stored in your books and present it in an easy-to-understand format. There are different types of reports that each serve an unique purpose. Here is the Balance Sheet.

What is a Balance Sheet?
A balance sheet provides insight into a business’s financial situation at a given time and is used to ensure the books are accurate. It consists of three sections: assets, liabilities, and the owners/shareholders equity.

Assets – are anything owned by your business that has a monetary value. This section of the balance sheet will outline the value of each of your business’s assets. Some examples include:

  • Cash – The funds your business possesses, including the cash in your back account.
    Accounts Receivable – Outstanding invoices your business is awaiting payment for.
    Inventory – Items your business resells in its effort to generate revenue.
    Equipment & Supplies – Tangible items used in your business operations.
    Reimbursable Expenses – Expenses incurred by your business that will be paid back by another party.
    Property – Building or land owned by your business and used in its operations.
    Prepaid Insurance – Current policies that have been fully paid for.

Liabilities – are any debts owed by your business. The liability section of the balance sheet will include the total amount of debt your business owes. Some examples include:

  • Accounts Payable – Funds owed by your business to other parties, not including loans.
  • Taxes Payable – Money owed to the government for taxes.
    Payroll Payable – Funds that are to be paid to employees for the wages they’ve earned.
    Loans Payable – The balance of any loans from a bank or investor that needs to be paid back.
    Credit Card Payable – The balance of any credit cards your business or employees use.

Owner/Shareholder Equity – is the value of assets that remain after the total value of liabilities has been deducted. It’s generally considered the source of the company’s assets. Some examples include:

  • Owner/Shareholder Capital – Investments made into the company. Including net income earned, minus withdrawals made.
    Retained earnings – Net income that stays in the business, instead of being paid out in dividends or as payment to the owner.

What if your Balance Sheet doesn’t balance?
In the simplest terms, a balance sheet is Liabilities + Owner/Shareholder Equity = Assets. Like the name implies, this equation needs to balance in the end. If it doesn’t, you likely misrecorded a number, listed something in the wrong section, or left it off altogether.

Here are some tips that can help you avoid mistakes:

  • Always review your entries for accuracy.
    Make sure all withdrawals made by ownership are included in the equity section.
    Use automated financial software to avoid human error.

Keeping accurate and up-to-date accounting records is a critical part of being a business owner. Your books hold a wealth of information about the financial state of your business that you can use to make savvy decisions.

3 Responses to Accounting Reports: What is a Balance Sheet?

  1. Joseph Ezenwa says:

    Donna, i have take your definition of balance for references-
    A balance sheet provides insight into a business’s financial situation at a given time and is used to ensure the books are accurate. It consists of three sections: assets, liabilities, and the owners/shareholders equity.Thanks.

  2. Carmen Sodersten says:

    Awesome post.

  3. Joseph Ezenwa says:

    A great insight into what financial statement is.A great profit and loss statement establishes a common language across the organization. It transcends departments and enables managers in different departments to understand and communicate their own performance within the broader context of the organization.
    While the profit and loss statement is primarily a numbers driven statement, the numbers themselves don’t often tell the whole story. Often there are particular events or contextual circumstances that must also be incorporated into the management report to round out visibility of performance issues.