• Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Shuriken Consulting

beyond the numbers

  • Pay your Bill
  • Tax Calculator
  • Contact Us
  • About
    • Privacy
  • Webinars
    • ATO Targets Cash Business
  • Services
    • Setup
    • Company Setup
    • Education
    • Finance
    • Insurance
    • Compliance
    • Bookkeeping
    • Tax and Accounting
    • Cloud Accounting
    • SMSF
    • Growth
    • Advice
    • Business Structure
    • Business Valuations
    • Wealth Team
  • Digital
  • International
  • Locations
    • Sydney CBD
    • Hornsby
    • Dural
    • Manly

Andrew Jeffers CEO / December 19, 2019

Understanding Your Balance Sheet

Understanding Your Balance Sheet

To understand the financial position of a business at a specific point of time, look at the balance sheet. The balance sheet may also be called the statement of financial position. Together with the Profit and Loss Statement, and possibly other reports such as the Statement of Cash-flow, these reports provide a complete understanding of the financial position and business performance.

So what’s involved? – The balance sheet has three sections: assets, liabilities and equity.

What are Assets?

Assets are things and resources that a company owns. They have current and/or future value and can be measured in currency.

Assets may be subdivided on the balance sheet into bank accounts, current assets, (receivable within one year), fixed assets, inventory, non-current (or long term) assets, intangible assets and prepayments.

These include banks and other financial accounts held, accounts receivable (trade debtors), supplier deposits or bonds, stock on hand, property, equipment, vehicles, investments and intellectual property. All of these can be translated into monetary value.

What are Liabilities?

Liabilities are amounts owed to suppliers and other creditors for goods or services already received. Liabilities may also include amounts received in advance for future services yet to be provided by the business.

Liabilities are generally subdivided into current, (payable within one year), and non-current liabilities.

These include accounts payable (trade creditors), payroll obligations (salaries, taxes, superannuation), interest, customer deposits received, warranties and loans.

What is Equity?

Equity includes owner funds contributed, drawings, retained earnings and stocks. The value of the equity equals assets minus liabilities.

Transactions that affect profit and loss accounts also affect balance sheet accounts. For example, providing a service increases the accounts receivable balance, which therefore increases the equity.

The Balance Sheet Equation

The balance sheet must always balance! Asset value = liabilities + equity.

For example, if you buy a new vehicle for the business at say $50,000, having paid a $10,000 deposit and taking out a $40,000 loan, the value of fixed assets increases by $50k, but the bank asset value decreases by the $10k deposit paid. The value of liabilities increases by $40k loan, thus leaving the balance sheet balanced on both sides of the equation.

The balance sheet equation shows you how much money you would have left over if you paid all your bills and debts and sold all your assets at a given date. This amount is the Owner’s Equity.

Note that the balance sheet equity total is not necessarily how much the business is worth at market value. Assets are listed on the balance sheet at their transaction value, which may be very different from the market value. Some assets may be worth more, and others may depreciate in value. Business value is calculated not just on the balance sheet figures but many other factors.

Need more information?

Talk to us. Get the complete picture of your business performance and financial position, regardless of what stage of business you are at.

 

contact-shuriken-today

Filed Under: Andrew Jeffers, Best Practice, Business, Business Planning, Customer Centric Tagged With: Andrew Jeffers, business ideas, understanding balance sheet

Primary Sidebar

Recent Posts

  • August 2021 Tax And Accounting News: All You Need To Know
  • Exclusive Probians Offer
  • Tax & Accounting Questions Answered Free for Probians
  • Government support for your business
  • Succession Planning for Small Businesses

B1G1

“Imagine if every time you made a step forward in your business, it had an unimaginable impact on the lives of others…”

Footer

Services

  • Company Setup
  • Education
  • Finance
  • Insurance
  • Bookkeeping
  • Tax and Accounting
  • Cloud Accounting
  • SMSF
  • Advice
  • Business Structure
  • Wealth Management
  • Business Valuations
  • Digital Marketing
  • Shuriken International
  • Events

About

Shuriken is at the forefront of accountancy, providing clients with a broad range of services, coaching and mentoring.

Contact Shuriken if you want to launch or grow a business or if you want to get a clear action plan on how to achieve your financial goals. We can help with benchmarking, cashflow forecasting, payroll and much more.

Learn More

NSW Business Chamber Member

Contact Us

Sydney CBD

T: 1300 886 066 or (02) 9114 8544

Hornsby

T: (02) 9485 3400

Dural

T: (02) 9651 2288

Endorsal

  • News
  • Events
  • FAQs
  • Contact Us
Terms of Use Privacy Policy Disclaimer