Why Accurate Balance Sheets Are Key for Future Growth When Bookkeeping for a Small Business/Corporation

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Recording transactions on a balance sheet accurately is necessary when Bookkeeping for a Small Business/Corporation in order to grow.

As a business owner — how will you get your business where you want it to go if you don’t know where you are financially? Establishing accurate records on your company’s balance sheet when Bookkeeping for a Small Business/Corporation is the first step to growing in dollars and cents.


Have you ever heard the phrase “balancing the books”? This term originated from one of the four basic financial statements — a balance sheet. Balance sheets are the most important financial statement as they show a business’s liquidity and theoretical value at a specific point in time. This means it shows the health of the company from the company’s existence.

Accurate balance sheets hold tremendous importance when Bookkeeping for a Small Business/Corporation as they are the foundation to generating statements and visually showing how a business is faring financially.

Not to mention, when financing, banks take their lending ratios from the balance sheet. Ultimately determining if you’re able to take your business to the next level or not.

So where to start?

Balance sheets are comprised of three accounts: assets (current and non-current), liabilities (current and non-current) and equity. All transactions from a business should go into one of these three accounts on the balance sheet and should “balance” as have shown in the infamous accounting equation below:

Assets = Liabilities + Equity

 

Assets:

Current assets are a business’s assets that will be turned into cash within one year (liquid) and can include: cash, accounts receivable, inventory and investments. While non-current assets are considered a business’s assets that will not be turned into cash within one year and can have a depreciating value such as property, buildings and equipment.

 

Liabilities:

Current liabilities are a business’s debts that are expected to be paid off within a year which can include: sales tax payable, payroll taxes payable, customer deposits and loans and mortgages payable. While non-current liabilities are debts and obligations that are expected to continue for more than one year and include: bonds payable, leases and loans and mortgages payable.

 

Equity:

Equity is the grand total of shares and dividends, common stock, preferred stock, paid-in capital and retained earnings (net income and loss of the business from day-to-day).

 

Categorizing all transactions as either assets, liabilities or equity and recording them on the balance sheet will provide you as a business owner with the much-needed information to have an accurate cash flow statement created. Cash flow statements will allow you to see where you are at currently, if you can meet your future financial obligations and how much money is required to grow to your business goal.

 

Example:

A truck is an asset – non-current. The truck loan is a long-term liability. The interest is expensed (first). The accumulated amortization is a non-current asset and depreciation of the truck is expensed first.

The most common mistake:

ABC Co. Balance Sheet as at 30/09/2021    
ASSET    
Current Assets    
Chequing 70,779.22   
Petty Cash 619.31   
Savings Bank Account 34.73   
Total Cash   71,433.26 
Total Receivable   15,410.43 
Purchase Payments   4,550.35 
Total Current Assets   91,394.04 
Capital Assets    
Building   109,319.24
Land 49,293.00   
Building - Accum Amort -1,463.00  
Building - Total   47,830.00 
Office Furniture & Equipment 12,005.27   
Accum. Amort. - Furn & Equip -1,528.00  
Net - Furniture & Equipment   10,477.27 
Computers 753.82   
Accum. Amort - Computers -132.00  
Net - Computers   621.82 
Total Capital Assets   168,248.33 
TOTAL ASSET   259,642.37 
LIABILITY    
Current Liabilities    
Accounts Payable   20,196.64 
Mastercard   2,085.48 
Corporate Taxes Payable   7,144.79 
Vacation Payable   490.07 
EI Payable 168.78   
CPP Payable 854.24   
Total Receiver General   1,023.02 
PST Payable   12,234.46 
GST/HST Charged on Sales 8,861.33   
GST/HST Paid on Purchases -298.96  
GST/HST Owning (Refund)   8,562.37 
Total Current Liabilities   51,736.83 
Long Term Liablities    
CEBA   30,000.00 
Mortgage Payable   73,140.00 
Loans from Shareholders   -6,319.21
Total Long Term Liabilities   96,820.79 
TOTAL LIABILITY   148,557.62 
EQUITY    
Total Share Capital   300.00 
Retained Earnings    
Dividends Paid   -20,000.00
Retained Earnings - Previous Year   53,144.80 
Current Earnings    77,639.95 
Total Retained Earnings   110,784.75 
TOTAL EQUITY   111,084.75 
LIABILITIES AND EQUITY   259,642.37 

 

The loan account shows as negative. You overpaid your loan.

 
 

Hiring a Professional

KB Accounting Services Inc. is happy to help your small business with its bookkeeping. Want to see how KB Accounting Services Inc.’s Bookkeeping Services for Small Businesses can bolster your business this year? We recommend checking another one of our articles out here.

 

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For any questions you may have, please feel free to contact us by phone at (306) 530-9548 or by using our online contact form below.

 


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