A balance sheet gives you a snapshot of your business’s finances at a point in time. It compares the total value of your practice’s assets to its debts and shareholders’ equity, indicating whether or not your company is solvent. It also allows you to track your financial performance over time, and make adjustments as necessary.
Assets (what your practice owns) are recorded on the left side of a balance sheet, while liabilities and shareholder’s equity are recorded on the right. The formula underlying a balance sheet is a simple one: assets equals liabilities plus shareholders’ equity.
Generally, assets are divided into two categories based on their due date: current and long-term. Current assets include items such as cash and cash equivalents, marketable securities and accounts receivable. Long-term assets are items like property and equipment, amortized leases and long-term investments. Liabilities are a list of payment obligations that your company is obligated to pay, including loan repayments, wages payable and income taxes payable. The right-hand side of a balance sheet lists these items as well, and then totals them all together.
Finally, the bottom of the balance sheet shows the net worth of your business. This includes your current assets minus current liabilities, as well as the sum of all past earnings minus dividend distributions. This information is critical for you as a business owner because it helps you assess your practice’s liquidity, and the ability to pay your pressing debts should you become unable to do so. You can also use the information in a balance sheet to calculate key financial ratios such as the quick ratio, which measures how quickly your practice can liquidate current assets to cover its pressing debts. Bilanz Hattingen
