Helping entrepreneurs be more financially literate in their business is extremely important says Edmonton bookkeeping. The reason for that is if entrepreneurs are better able to read their interim financial statements and understand the finances of their business, they can avoid making poor financial decisions, as well as use that information to increase the revenue and grow their business. When looking at their interim financial statements, they should first look at their balance sheet and understand that because the most important information will be on this statement. Entrepreneurs should learn how to read the balance sheet and then how that corresponds to their income statement.

Entrepreneurs should understand what the balance sheet is communicating. It will have the assets of the corporation, what the corporation owes others, what the corporation is owned by others and what the equity is. When looking at the assets of the corporation, business owners should understand that includes all of the assets that include cash, and he Accounts Receivable that the corporation has, the money that is in any bank accounts for the corporation. Not only should entrepreneurs understand what the assets are, but also that they are going to be listed in order of what is easiest to make liquid first. This will give an entrepreneur a good idea of how much money is in the corporation.

The second thing in the balance sheet says Edmonton Bookkeeping is all of the liabilities of the corporation. This includes all of the invoices and bills that the corporation owes, including credit cards. Payroll is included in the liabilities as well as the source deductions. Anything that the corporation owes is considered a liability. Business owners can look at the assets of the corporation compared to the liabilities, and start to get an idea of the financial state of the business. Ideally, the assets should be greater than the liabilities.

At the very end of the balance sheet, business owners will see that there is equity. This includes all of the shares that a corporation has, the dividends paid to the business owner and essentially everything that is coming into the business that has come in without financing.

It is important that an entrepreneur burns how to read the balance sheet well, and once they have a great understanding of it, move on to the income statement and read it together in order to get a clear picture of where the business is. Many entrepreneurs have a difficult time reading the balance sheet, or understanding what information it is communicating, and therefore make their financial decisions looking only at their income statement. This is not advised says Edmonton bookkeeping for a number of reasons. First, the income statement will not show the entrepreneur the overall financial state of the business. That can be achieved by looking at the balance sheet and understanding it then using the two interim financial statements together in order to truly understand what is going on in the business financially.

In order to be able to easily read and understand the balance sheet of the corporation, Edmonton bookkeeping says that entrepreneurs should not some basic financial terms so that they have a better idea of what they are looking at when they read their interim financial statements. It is extremely important that entrepreneurs learn how to read these sheets so that they can start making informed financial decisions in their business. 50% of all Canadian entrepreneurs fail within the first five years of opening their business, and 29% of these entrepreneurs say that the reason for their failures because they ran out of money in their business. Learning how to read the balance sheet of their corporation, and how that relates to the financial statements can help entrepreneurs gain a deeper understanding of their business finances, and make financial decisions that can not only help them avoid making financial decisions that will harm the business, is that information to help them grow as well.

When entrepreneurs are looking at the balance sheet, it is going to show the Accounts Receivable of the corporation. Entrepreneurs need to understand that Accounts Receivable is all of the money that the corporation is owed. This means the entrepreneur has provided the product or service to the customer, and has invoice them and is now waiting for payment. The more money that is in Accounts Receivable, the more money the entrepreneur is owed. Entrepreneurs need to understand that while it is great to have a lot of revenue in the business, it is not always great to have a large Accounts Receivable if it has been outstanding for a longer period of time. Ideally, entrepreneurs want to see that number hi, but only because they have recently invoice that. The longer Accounts Receivable is outstanding, the harder it is for a corporation to collect says Edmonton Bookkeeping.

Entrepreneurs will also see on their balance sheet section for accounts payable. This is referring to the amount of money that an entrepreneur owes others. They received a product or service, and have an invoice showing how much they owe, but an entrepreneur has not paid that yet. Again this is a section of the balance sheet that entrepreneurs do not want to have extremely high, because that means there either accruing a lot of bills or their not paying them off timely. An entrepreneur should generally want to see the accounts payable as small as possible, because it means they are paying off their debts.

When entrepreneurs are able to clearly understand what information is on the balance sheets says Edmonton bookkeeping, and how to use that information in relation to their business, will be in a much better place to make informed financial decisions. Doing that can help entrepreneurs not only avoid poor decisions, and actually proactively help them grow their business and to become successful. Understanding the balance sheet is the first step to reading all of the corporation’s financial statements.