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

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 Chequing70,779.22  Petty Cash619.31  Savings Bank Account34.73  Total Cash 71,433.26 Total Receivable 15,410.43 Purchase Payments 4,550.35 Total Current Assets 91,394.04 Capital Assets Building 109,319.24Land49,293.00  Building - Accum Amort-1,463.00 Building - Total 47,830.00 Office Furniture & Equipment12,005.27  Accum. Amort. - Furn & Equip-1,528.00 Net - Furniture & Equipment 10,477.27 Computers753.82  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 Payable168.78  CPP Payable854.24  Total Receiver General 1,023.02 PST Payable 12,234.46 GST/HST Charged on Sales8,861.33  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 -6,319.21Total Long Term Liabilities 96,820.79 TOTAL LIABILITY 148,557.62 EQUITY Total Share Capital 300.00 Retained Earnings Dividends Paid -20,000.00Retained 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.

Contact Us

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.