The balance sheet shows a summary of what a company owes and owns at a specific point in time.
As a business owner, it is important to know how the balance sheet works because it is needed to 

  1. Obtain funding for the company
  2. Help assess risks when acquiring other businesses
  3. Ascertain the financial health of the company

Many businesses fail due to poor cash flow management and financial health. Understanding how the balance sheet works is the first step to a successful business.

A balance sheet comprises 3 sections: Assets, Liabilities and Equity.

For assets, we have current assets and noncurrent assets. 

Current assets usually stay on the balance sheet for less than a year. Examples of current assets are cash, accounts receivable (money to be received from customers), inventories (list of goods to be sold) and prepaid expenses (sum paid in advance).

Noncurrent assets are long term, and stay on the balance sheet for years. They can be equipment, plants and furniture.

Likewise, there are current and noncurrent liabilities too.

Examples of current liabilities are amount payables (sum to be paid to suppliers) and accrued expenses (money to be paid in the future, e.g payrolls) while noncurrent liabilities can be long term bank loans.

Equity can be understood as what the business owes to the owners or shareholders. It can be monies invested into the company or dividends yet to be distributed out. Examples of equity are owner’s equity, retained profits (dividends not distributed to shareholders yet) and stocks issued by the company.

If all these seem too much to digest, don’t worry. This is why bookkeepers help companies to prepare their balance sheet. They can even explain each component to you so you can make more informed financial decisions for your company.

 

A bookkeeper can be of tremendous help in setting up balance sheets for the company. To know more about our accounting bookkeeping service in Singapore, contact us at any of the channels below!

Phone: +65 6444 3130
Whatsapp: +65 8345 5558
Email: [email protected]g
Website: https://venturehaven.com.sg