Wednesday, May 25, 2011

QuickBooks: The Balance Sheet…Is it Correct?

I recently looked at a client’s balance sheet. I was quite surprised when I saw it as there seemed to be many accounts that should be questioned based on our conversation about her business. Since she made no comment I realized that she may not understand what she was seeing.

It is important as a business owner or someone preparing a report for the business owner, you understand what the figures on the balance sheet are telling you.

ASSETS
Assets are the first section on the balance sheet. Your current assets are listed first. Current assets are cash or cash equivalents that can be expected to be converted to cash within a year.

Your bank accounts are listed first and the normal balance will be a debit. If any of your bank accounts show a credit balance, that account is overdrawn as of the date of the balance sheet.

Accounts receivable will be the next current assets on your balance sheet. This account will have a debit balance.

The next group of current assets will depend on your type of business. They may be customer deposits, prepaid expenses, inventory, employee advances, etc. They should all have a debit balance and you can convert them into cash within a year.

The last group of assets will be your fixed assets. These cannot be converted to cash within a year. They will consist of your property, furniture and fixtures, equipment, automobiles, etc. These accounts will have a debit balance. There will be an accumulated depreciation account associated with these accounts that will have a credit balance.

If you have paid any security deposits it may be listed under Other Assets on the Balance Sheet.

LIABILITIES
Your liabilities are what you owe to others. A current liability will be paid off within a year.

Your current liabilities will be accounts payable, and all your credit card accounts. These accounts should have a credit balance. If an account has a debit balance you may want to investigate the reason. For example, a credit card account may show a debit balance which would indicate that you have a credit due to you from them.

If you have employees, your other current liabilities will be payroll liabilities. Depending on the number of employees and the benefits you offer your employees, you may have several liabilities, or you may have just the payroll tax liabilities. Whatever liabilities you have, they should have a credit balance. If a liability has a debit balance, then you have probably over paid and are due a refund.

Your long term liabilities are the debts that will not be paid off within a year. They will be your mortgage payment, loan payments, vehicle payments, etc. These liabilities will also have a credit balance.

EQUITY
This is the last section of your balance sheet and it shows how much money has been invested in your company. Depending on the type of entity, you may have an Owner’s Equity account, Capital Stock, or Treasury Stock account.

Your retained earnings account shows what your company has earned since the beginning of it’s operation. Your retained earnings should be a credit if your company has been making money. If your company has not been making money it will be a debit balance.

Dividends paid to shareholders, and draws to owners and partners will have a credit balance.

The balance sheet is a snap shot of your company’s financial position at a single point in time. The purpose is to give the users an idea of the company’s financial position along with what it owns and owes.

It is very important that you understand how to analyze and read this document.

3 comments:

williammarie078 said...

The Federal Credit Advocates fight for your rights to a better credit score. The FCRA gives us rights as consumers which we advocate to restore your good credit click here fix bad credit

Anonymous said...

Hermes replica belongs to the virtually all mandatory detail for any partner, looks after are in many excellent patterns for the purpose of completely different objectives. Such patterns deviate inside their concepts, different sizes, color selection and therefore the information would always fabricate. hermes outlet happens to be an tremendously effective detail. May very well stored various types from purses not to mention his or her's takes advantage of. looks after because of Orla Kiely need mind boggling array obtainable in a number of different sizes not to mention patterns for all the objectives, Orla Kiely purses commonly are not a lot of steeply-priced because of this anybody will be able afford to pay such purses. Options good purses allow belief concerning ending typically the gear need in so doing keep going rather long. Sells utilize comparable high-end fabrics for the reason that raised for typically the trendy replica rolex datejust watches towards trendy the exact color selection, trend, cachet, stamp recording label, form or maybe even device show phone number, to guide you troublesome to share typically the trendy copy purses out of your trendy breitling replica watches due to its comparable superior trendy not to mention hard-wearing amount. When considering selling price from trendy copy purses, frequently you should purchase Twelve towards 12-15 copy trendy purses together with the profit to find a particular trendy gucci replica.

chenlina said...

oakley sunglasses
polo ralph lauren
louis vuitton
gucci outlet
michael kors handbags
adidas superstar
cheap jordans
coach outlet online
dallas mavericks jerseys
polo ralph lauren outlet
chenlina20170228