Business owners should understand that it is extremely important to get into the habit of reading the balance sheets of their business says Edmonton bookkeeping. The biggest reason for this is because this can help entrepreneurs understand what is going on in their business finances so that they can be more proactive in the decisions they make financially. One of the biggest reasons why entrepreneurs do not use balance sheets more is because they do not understand how to read the statement. And how useful learning how to read a balance sheet can be for entrepreneurs, there is no reason why business owners should not be able to easily learn so that they can gain a deeper level of understanding.
There are three main sections on the balance sheet that business owners should learn. Edmonton bookkeeping says these three areas are all of the assets of the corporation, the liabilities, and the equity in the business. By breaking down buds in each of the sections can help entrepreneurs understand each section, and why it is important.
When listing the assets of the corporation, Edmonton bookkeeping says that business owners should see that the cash is listed first. This is in each of the bank accounts that an entrepreneur has, and ideally, an entrepreneur should only have one checking account for business expenses. They may have a second one for savings, but business owners should ensure that they are only using one or two bank accounts at most. Some entrepreneurs have many as a way of staying organized, but that actually can make things more difficult for their Edmonton bookkeeping company, as well as increase the expenses of their business because of the bank fees.
They also see in the list of assets in the corporation, that their Accounts Receivable is listed as an asset. Many entrepreneurs ask what Accounts Receivable is, and simply put it is all of the money that the corporation is owed. This is from providing the products or services that their business offers, has an invoice for the end is waiting for payment. It is important that entrepreneurs keep an eye on this section of their assets, that it is not growing too large. While many business owners think an extremely large Accounts Receivable is a positive thing, it only is if it is because the revenue of the business is growing at the same rate. Otherwise, it can be an indication that an entrepreneur is not getting paid promptly. If this is the case, entrepreneurs can ensure they are working to relieve that problem, either on putting at staff member on accounts receivable, or the entrepreneur doing it themselves.
By understanding the information that is contained in the balance sheet, and the reason for the amounts listed can help entrepreneurs be proactive in their business to ensure that their business is growing and that they are staying on top of their expenses and the money that they are owed.
If entrepreneurs can understand their business finances, and they will be better equipped to make informed financial decisions in their business says Edmonton bookkeeping. The only way they can do that is by learning how to read balance sheets, and understanding what the information is on it so that they can act accordingly in their business.
The second section on their balance sheet should be a list of all of the liabilities in their business including the accounts payable. Edmonton’s bookkeeping says that the accounts payable section shows the amount of money that in entrepreneur those others. If they received invoices or bills, this will show up here. It is extremely important that an entrepreneur is looking at this section very carefully because if they are noticing that their accounts payable section is increasing month-to-month, they should verify if it is increasing at the same rate that their revenue is growing or not. If their bills are growing at the same rate that their revenue is growing, that is not something to be as concerned about, because entrepreneurs understand that some of their bills are going to increase as a way of them generating more revenue. However, if there accounts payable is growing faster than their revenue, that could be that their expenses are out of control, or that they are not paying off those expenses promptly. If entrepreneurs see that this section is growing larger than it should, they can do some investigation as to why, and then act accordingly.
Other liabilities that are listed in the balance sheet are payroll deductions, which means all of the withheld tax from their employee’s payroll, as well as credit cards and anything that an entrepreneur has owed within the current fiscal year. They should ensure that their personal credit cards are not listed in the liabilities of the business. If that is the case, it may cause problems later on, especially if they get audited. While it is not considered good practice for entrepreneurs to pay business expenses with their personal credit card, if it happens it should be listed in the shareholder’s loan account and not in the balance sheet of the business.
The final section which is at the bottom of the balance sheet will be the equity of the business. This indicates the shares of the business, the dividends paid out to the entrepreneur and anything that a business owner has taken out of their corporation. This is extremely important to look at, especially in relation to the assets and liabilities of the business.
Edmonton bookkeeping says that business owners should gain a complete understanding of the information on the balance sheet and then review the balance sheet and income statement together in order to get a clear picture of the financial state of the business. When business owners do this, they have a powerful tool that they can use to help them make informed and guided financial decisions in their business.