When it comes to managing your business, one of the most crucial financial statements is the balance sheet. We cannot emphasise how important it is to learn how to read a balance sheet to ensure your company’s financial health.
To read a balance sheet, you will have to analyse your company’s reported assets, liabilities and equity to have a clearer idea of what your business owns and owes at a point in time. As overwhelming as that may sound, all it takes is a few key concepts to grasp, and you’d be reading a balance sheet like a pro.
By the way, if you want to fuel the growth of your company by focusing on core business activities, we get it. Why not leave the bookkeeping tasks to our experts?
Here’s everything you need to know about a balance sheet.
What Is a Balance Sheet?
A balance sheet is also known as a “statement of financial position”, designed to reflect the value of a company or organisation. The balance sheet reveals the company’s assets, liabilities, as well as the owners’ equity (net worth) as of a particular date, otherwise known as the “reporting date”. It goes hand in hand with two other key financial statements used to evaluate a business — an income statement and a statement of cash flow between the two, known as the cash flow statement. All these financial statements might be prepared by accounting services.
A balance sheet is generally prepared and distributed on a monthly or quarterly basis, with its frequency of reporting being determined by the company policy or by law.
What Is the Purpose of a Balance Sheet?
The purpose of a balance sheet is for business owners and investors alike to better understand and gauge the general financial health of their business, on top of what the company owns and owes.