Account15

What is a balance sheet?

A Balance Sheet is a snapshot of your business’ financial position on a given day, usually calculated at the end of the quarter or year. It is a summary of your company’s assets, liabilities/obligations, and owner’s financial involvement. The Balance Sheet in your Fresh Books account is just a template, and we do recommend seeking advice from an accounting professional when creating a new one.

When do I need a Balance Sheet?

A business will generally need a Balance Sheet when applying for loans or grants, submitting taxes, or seeking investors. A Balance Sheet is how a business can verify that all their financial records are in check. There are essentially 3 accounting categories used to keep track of your finances:

1. Assets

2. Liabilities

3. Owners’s (aka Shareholder’s) Equity

The way your finances “balance” is as follows: Assets = Liabilities + Owner’s Equity

What is an asset?

Accounting language: An asset is anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value. To a business: Assets include cash on hand (cash & money in the bank), accounts receivable, reimbursable expenses, inventory, and any equipment that is of value. In Fresh Books, your “outstanding” Invoices would be considered accounts receivable. These items are a great starting point for the Assets section of your Balance Sheet:

Cash on hand: Any money your business has direct access to. That would include all cash + money in the bank. Accounts Receivable from Fresh Books: The value of your outstanding invoices as of the balance sheet date. This does not include any invoices that are still in “draft” status. Fresh Books will populate this value for you, but you are welcome to change it. Accounts Receivable from other Sources: Any outstanding money you are expecting to be paid from sources outside of Fresh Books.

Inventory: Goods and materials that a business holds for the ultimate purpose of resale. Inventory does not count any items that you have already sold.

Equipment: Any tangible items of value that you have purchased for business purposes, but that you are not selling. Check out this FAQ post for more examples.

Reimbursable expenses: Any expenses that you purchased that you will be reimbursed by another party. An example of this would be gas required to travel for business purposes. Click Add or remove Assets for more options.

What is a Liability?

Accounting language : A liability is an obligation or debt of your business from past transactions or events. To a business: Liabilities are moneys owed by the business. An example of liability is a loan for your business, accounts payable, credit cards payable, or taxes you still need to pay. These items are a great starting point for the Liabilities section of your

Balance Sheet:

Accounts Payable: Money that you owe to other parties for reasons other than a loan. An example of this would be a received invoice that you have not paid yet, for a service such as advertising, or electric/telephone bills.

Taxes Payable: Taxes that you owe the government. Current Loans Payable: The value of any loans from banks/investors that you have not paid back yet. Long Term Loans Payable: Any long-term loan that you have not paid off yet.

Credit Cards Payable: The value of your business’ unpaid credit card debt. Click Add or remove Liabilities for more options.

What is Equity?

Accounting language: Equity is the owner’s claim on the assets of a business. It represents assets that remain after deducting liabilities. To a business: Equity is what you put in or take out of the business. Examples of equity would be opening investments, contributions, owner’s capital or retained earnings. When you re-arrange the accounting equation, Equity = Assets - Liabilities. Owner’s Capital and Retained Earnings are a good start for the Equity section:

Owner’s Capital: Owner’s investment into the company plus the net income earned by the company, minus any withdrawals made by the owner.

Note: The owner’s bank account and the business bank account are separate entities.

Retained earnings: Net income which is retained by the corporation rather than distributed to its owners as dividends.

What is the profit and loss statement?

The profit and loss statement, or P&L, is a name that is often used for what today is the income statement, statement of income, statement of operations, or statement of earnings. In other words, the profit and loss statement reports a company's revenues, expenses, and most of the gains and losses which occurred during the period of time specified in its heading. The profit and loss statement's period of time could be a year, a year- to-date period such as nine months, a quarter of a year, one month, four weeks, 52 weeks, etc. (A few gains and losses will not be reported on the profit and loss statement and will instead be reported on the company's statement of comprehensive income.) Under the accrual basis (or method) of accounting the revenues and expenses reported on the profit and loss statement should be:  The revenues (sales, service fees) that were earned during the accounting period, and the expenses (cost of goods sold, salaries, rent, advertising, etc.) that match the revenues being reported or have expired during the accounting period