What is a Balance Sheet?

An Answer for Houston Small Business!

As a small business owner here in Houston, you are an expert in your field.  You know your industry, but you may have challenges with accounting issues. Financial statements such as balance sheets may be a little confusing. I hope you will find my blogs helpful. You may make an appointment with me for a free phone appointment to discuss how I help you with your small business accounting.

The balance sheet is a snapshot of your business financials. It includes assets, and liabilities and net worth. The “bottom line” of a balance sheet must always include assets and liabilities and net worth (assets = liabilities + net worth). The individual elements of a balance sheet change from day to day and reflect the activities of a business. Analyzing how the balance sheet changes over time will reveal important financial information about a business. It can help you monitor your ability to collect revenues, manage your inventory, and assess your ability to satisfy creditors and stockholders in Houston and beyond.

Liabilities and net worth on the balance sheet represent sources of funds. Liabilities and net worth are composed of creditors and investors who have provided cash or its equivalent to your business. As a source of funds, they enable your business to continue or expand operations.

Assets represent the use of funds. Your Houston business uses cash or other funds provided by the creditor/investor to acquire assets. Assets include things of value that are owned or due to a business.

Liabilities represent obligations to creditors while net worth represents the owner’s investment in the business. Both creditors and owners are “investors” in the business with the only difference being the time frame in which they expect repayment.