What is a Balance Sheet and Why Do I Need One to Run My Business?
The Balance Sheet is a fundamental of accounting. It represents a single point-in-time snapshot of a company’s overall financial health. It is crucial for understanding a company's net worth, liquidity, and solvency. Owners can identify financial concerns and opportunities for growth.
The Balance Sheet helps business owners make informed operational and strategic decisions, ensures businesses meet legal and regulatory requirements, helps investors assess stability, and allows lenders to evaluate risk.
As a business owner, you need to monitor your expenses and understand the company’s net worth. This helps with strategic planning, such as deciding whether to postpone expansion due to low cash reserves or invest in new projects if assets are growing.
Public companies are required to file their balance sheets, which are reviewed by tax authorities and regulators to ensure compliance with financial laws, regulations, and tax liabilities. This helps to minimize the potential for fraudulent activities.
Bank Reconciliations
Bank reconciliation maintenance is performed weekly for your bank checking, savings, and credit card accounts. The accuracy of your financial records is ensured by identifying, categorizing, and resolving any differences between your banking statements and the company books. This critical step helps prevent errors. We provide reports that give you insight to support sound decision-making, helping you grow your business.
Your monthly bank and credit card statements will automatically sync with your QuickBooks account, allowing us to use secure, encrypted cloud-based software for your bookkeeping.
Focus on your business while we handle your bookkeeping.
Accounts Receivable (AR)
Accounts Receivable (AR)
- Money coming into the business is recorded as an asset. Revenue is recorded on the income statement when earned; AR is an asset, not cash on hand, on the balance sheet. Invoices can be collected upon sale or on a Net 30, 60, or 90-day basis. You need to understand cash flow.
- Cash Flow – ensure your business has enough incoming cash to cover operating expenses and fund growth.
- Liquidity - the company's working capital and overall liquidity, or its ability to meet short-term financial obligations.
- Financial Health - maintaining accurate debit and credit accounts receivable for sales, invoices, and payments ensures that your books accurately reflect your financial situation and prevent cash flow surprises.
Accounts Receivable
What are Accounts Receivable and Accounts Payable and What are they Used For?
What are Bank Reconcilations?
Accounts Payable
Accounts payable (AP)
- Money going out of the business, recorded as a liability. Accounts payable AP is the money a business owes to its vendors and suppliers on credit for goods and services purchased on credit. A business needs to ensure the proper processing of invoices, verification of payments, and that suppliers are paid on time.
- Short-Term Debt - money owed generally within a year or one operating cycle. This is a liability on the Balance Sheet that the company must fulfill, such as rent, utilities, raw materials, or services purchased on credit. Impact on cash flow: The level of accounts payable can affect a company's cash flow. For example, an increase in AP might mean the company is purchasing more on credit, while a decrease could mean it is paying off obligations faster.
- Long-Term Debt – Loans and mortgages the company owes with a payback period of more than 1 year.
Profit and Loss Statement
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- A Profit and Loss (P&L) statement contains a company's revenue, cost of goods sold, interest, taxes, and net profit or loss over a specific period of time. It summarizes a business's income and costs to show whether it is profitable or not.
- Key components of a P&L statement Revenue: The total amount of income generated from sales.
- Cost of Goods Sold (COGS): The direct costs associated with producing the goods or services sold.
- Gross Profit: Calculated by subtracting the cost of goods sold from the revenue.
- Operating Expenses: Costs incurred from normal business operations, such as rent, payroll, and utilities.
- Operating Income (or Loss): Gross profit minus operating expenses.
- Costs related to borrowing money and government taxes. Net Income (or Net Profit/Loss): The "bottom line," which is the final profit or loss after all revenues, expenses, and taxes have been accounted for.
What are Profit & Loss Statements and Why Do I Need Them?
How Does a Statement of Cash Flow Help My Business?
- The Statement of Cash Flows is a financial statement that summarizes a company's cash inflows and outflows over a specific period, broken down into three main categories: Operating, Investing, and Financing activities. It provides insight into a company's liquidity and financial health by showing how cash is generated and used, complementing the income statement and balance sheet. Components of a statement of cash flows Operating Activities: Cash flows from the main revenue-generating activities of the business, such as cash received from customers and cash paid to suppliers and employees. Investing Activities: Cash flows related to the purchase and sale of long-term assets, such as property, plant, equipment, and investments. Financing Activities: Cash flows from borrowing money, repaying debt, and issuing or repurchasing stock.
- Why a cash flow statement is important Shows liquidity: It provides a clear picture of how much actual cash a business has available to meet its short-term obligations. Analyzes financial health: By tracking cash flow from operations, investing, and financing, it helps assess a company's ability to generate cash, fund growth, and pay debts. Complements other financial statements: While the income statement shows profitability, the cash flow statement explains how that profit is or isn't being converted into cash. Supports decision-making: It is crucial for planning, especially when seeking financing or planning for investments.