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What is a Balance Sheet?

For any business owner there are a number of financial factors you will need to have a solid understanding of. When aiming to maintain a healthy monetary profile, nothing is quite as important as knowing just what a balance sheet is.

The business balance sheet otherwise known as the statement of balance is often, quite innocently confused with a profit and loss account. At Calculated Accountants we’ve come across many customers who have been unable to determine the difference.

A profit and loss account shows what has happened to a business over a significant period of time. A balance sheet is a snapshot of a particular period of time (anything from one day to eighteen months). The difference between the two may seem slight however by making sure you are aware of it, you can protect yourself from any pitfalls and stay one step ahead of the game.

So what is a balance sheet used for and how can it help your business?

A balance sheet is a fantastic way for business owners to stay on top of cash flow and manage any debts. A balance sheet is also a great way to assess the value of a business which is ideal for those seeking further investment or planning growth.

What is included within a balance sheet?

The main financial factors noted within a balance sheet include:

  • Current assets
  • Current liabilities (anything that needs paying)
  • Long term liabilities (things you may have to pay in the next 12 months)
  • Net assets
  • Capital and Reserves (this could include cash injections or any share capital)

As a snapshot of the financial state of your business, your balance sheet will need to include comparative figures from the previous year. So if you are creating a balance sheet for September 2013 you will need to include the same figures from September 2012 to determine what, if any changes your business finances have faced.

Creating a balance sheet or asking your business accountant to create one for you is a fantastic way to stay on top of your financial situation, plan for growth and avoid any unsuspecting disasters.

A healthy financial profile is vital for the success of any business whether you are a large corporation, small business or start up. So give yourself a much needed edge and protect yourself from any pitfalls by ensuring you know just what a balance sheet is and how it can play a part in your business.


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