What is a balance sheet?

What is a balance sheet?

 

Here at Mazuma, we know financial statements are important for running a small business.  There are three basic financial statements; the balance sheet, income statement, and the statement of cash flow. A balance sheet is a description of a company’s assets, liabilities and equity at a specific point in time.  This is a snap shot of the business of what it owns, owes, and the amount of investments it has.

Balance sheet equation: Assets = Liabilities + Equity

The balance equation must be perfectly equal, which is why it is called the “balanced” sheet.  Similarly, your company’s liabilities and equity must equal the same amount as your assets.

Assets: In this section, assets are listed in order of their liquidity (assets that can be converted into cash the easiest).

  • Current assets: These are assets that are expected to be converted into cash within one year such as accounts receivable and inventory.
  • Long-term assets: These are assets that are not intended to be converted into cash within one year such as long term investments, property, plant and equipment.

Liabilities: This is what the company owes. Liabilities range from salaries owed to essential bills.  The Liability section has two categories:

  • Current liabilities: These are short term obligations due within one year.
  • Long-term liabilities: These are financial obligations due one year in the future.

Equity: Also known as shareholders equity.  This is what remains after subtracting assets and liabilities.

  • Retained Earnings: This is the amount of net income left over after dividends have been paid to its shareholders.

Still have questions about your business’ balance sheets? Mazuma takes care of your accounting, bookkeeping and tax information.  In addition, we also take care of your financial statements on a monthly, quarterly or annual basis.  We are here to answer any of your questions after we have completed your financial statements. Above all, we can go over each section of your balance sheet so you can be at ease and focus on your business!

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