Understanding accounting systems: Tips for compiling your balance sheet
Small business owners are usually eager to manage their own books – especially during the early years of trading. But just because you’re an entrepreneurial whiz doesn’t necessarily mean that you’ve got an expert understanding of basic bookkeeping practices. Not everyone is a born bookkeeper – but thanks to QuickBooks’ advanced, easy-to-use accounting software, you’ve got all the tools you need to manage your finances simply, quickly and accurately.
Before you start running your own business finances, however, it’s important to gain a basic understanding of the types of accounts and statements you’ll need to create. One of the most critical financial statements is the balance sheet – an accounting system that monitors the cash flow of your business, including its earnings, debt and general state of liquidity.
QuickBooks’ latest accounting software helps the small business owner to make sense of these accounting systems by providing step-by-step tutorials and customer support. Nonetheless, it’s always helpful to understand a little about these accounting systems yourself, before installing your bookkeeping software.
Continue reading to learn more about balance sheets and their role in your company’s accounting system. Alternatively, explore QuickBooks’ range of world-recognised accounting software programs, available for purchase online now.
What so important about a balance sheet?
The balance sheet is one of a business’s most important financial statements. In essence, it reveals the financial standing of the business, by reflecting what the business owns, and what it owes. This type of information is not only vital to the business owner, but also to outside organisations and sources, such as lending institutions, creditors, prospective investors and potential business partners.
At any moment in time, the balance sheet provides an overview of the company’s financial standing, and for this reason it’s an absolutely essential part of a business’s accounting system.
Simply glancing at the balance sheet enables the business owner to gauge the company’s present financial strength, and its capacity for expansion. It will also reveal whether the company needs to take steps to boost its cash flow. Furthermore, it reflects the company’s debt and credit statuses, and reveals current financial trends – especially in terms of payables and receivables.
What information do I require for my balance sheet?
Explained simply, the balance sheet is premised on the equation:
Assets = Liabilities + Shareholders’ Equity
Hence, your balance sheet must reflect the company’s assets, which are comprised of both long-term assets (or fixed assets, such as buildings, vehicles and equipment) and current assets, which include cash, accounts receivable, and money market accounts, for example.
Liabilities are calculated by adding up all the money that is owed by the business to outside sources – in other words, by adding up any accounts, notes or accrued payroll that is outstanding.
Finally, shareholders’ equity is calculated by adding the initial investment in the business to any other earnings that are reinvested in the company. Once you have all this information at hand, you’re ready to compile your balance sheet.
QuickBooks makes it easy to create an accurate, reliable balance sheet
While it may sound confusing to the amateur bookkeeper, it’s actually very simple to compile a balance sheet, provided you have the right tools at your fingertips.
Making use of an advanced accounting system, such as QuickBooks’ accounting software, takes any guesswork out of preparing your balance sheet. You’ll not need to complete complicated formulas or calculations, or worry about creating the right layout for your document. QuickBooks’ comprehensive accounting system packages guide you through every step of the bookkeeping process at the pace you require, and by providing the guidance you need.
View our complete selection of accounting system packages to find the right software for your business. From start-up companies to established businesses, we’ve got the right solution for your bookkeeping requirements.