Balance sheet importance

Importance of financial statements: the balance sheet

When nearing the end of your company’s financial year, there are a number of procedures that need to be performed to ensure that your business’s finances are in order. One of the major financial statements that business owners and their accountants ought to be using in order to achieve financial success for their business is the balance sheet.

Across all industries, the financial health of a company is measured against three major financial statements: income statements, cash flow statements and balance sheets. Cash flow statements determine business liquidity, and income statements show a business’s profit or loss, whereas balance sheets display an entire snapshot of a company’s financial state at a particular moment in time.

While the income and cash flow statement are equally important when nearing financial year-end, a balance sheet is able to show you whether your business’s finances are accurately managed. For this reason, balance sheets are crucial for the strategic financial planning of any business.

QuickBooks Accounting Software is a practical accounting software system that allows effortless balance sheet creation and enables business owners to easily keep track of their business’s finances.

A general breakdown of what the balance sheet entails

Balance sheets need to be prepared by all businesses as part of the annual processes leading up to the financial year-end to give the business owner and shareholders an indication of the financial health of the company.

A balance sheet is written documentation of all assets or capital owned by or owing to the business. It is also a representation of the amount of money owed by the business to third parties. And thus, when calculating, it is important to remember that the total net asset value should be equal in value to the capital and net profit of the business. In other words, the books need to be in balance.

Though having your balance sheets prepared by qualified accountants and financial controllers is worthwhile, it is also vital that business owners understand the balance sheet so that they can have a true indication of the financial state of their business. QuickBooks Accounting Software gives business owners the benefit of hands-on accounting, without necessitating years of accounting experience.

Every balance sheet is unique; while a business may experience a high profit account, it can simultaneously have a poor balance sheet if the total net asset value is low and vice versa. Balance sheets determine the financial strengths of a business and leave room for future financial planning.

On completion of an accurate balance sheet for your business, you will be able to determine:

  • The productivity and solvency of the business.
  • The amount of capital retained in the business.
  • How fast or slow assets can be converted to capital.
  • The general financial state of the business at a specific point in time.

Balance sheets made easy with QuickBooks Accounting Software

In order to survive the annual rush every financial year end, you need an intelligent accounting software program such as QuickBooks Accounting Software to assist you in balancing the books of your business. Browse our range of accounting software from QuickBooks SimpleStart, QuickBooks Pro and QuickBooks Premier to find the package that meets your business needs.

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