What is a balance sheet?
A simple balance sheet is like a snapshot of the company’s overall financial health. It shows the assets, liabilities and equity of the company. This brings us to simple equation:
Balance sheet equation
Assets = Equity + Liabilities
In Assets a company will show all the equipment, building and vehicles it has and also cash and accounts receivables. The equity is the value of the shares issued by a company. Liabilities show what company owes to other parties. This usually includes trade debt, short term and long term loans.
What does a balance sheet show?
A simple balance sheet should show three distinct parts: assets, liabilities and capital or “owner’s equity”, as it’s sometimes termed. This includes details like the specific assets and their cost value. Based on the balance between assets on one side and owner’s equity with liabilities on the opposite side, you can get a rough sense of the valuation of a company.
How does a balance sheet help you?
A balance sheet is essentially a part of financial statement. It’s a simple but powerful tool to help gain an overview of a company’s financial health. You can use it to understand what is the companies profile, what is th difference between accounts receivable and account payble, what is the overall debit of the company.
MoneyPenny puts business reporting in your hands by allowing you to generate and compare data over multiple time periods. Analyzing the business data is important in decisions that involve the growth of the company such as whether to buy more equipment, or if there’s enough value for investors