Balance Sheet

Even if you are not familiar with the accounting process, you must have heard of the balance sheet. The accounting balance sheet is one of the major financial statements used by accountants and business owners, it is also known as the statement of financial position. It’s a financial statement that summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders. And of course, Easy ERP accounting software has this accounting report as an instrument, that helps you run your business more efficiently. As any other kind of financial statement that is present in EasyERP you don’t have to input data manually, the hard lifting is done for you by the EasyERP accounting software.

So, to access the balance sheet all you have to do is click on the corresponding button in the accounting menu, as shown here:

main menu balance EasyERP

When you have done so, you will see a balance sheet itself. As you can see the report is divided into two parts, one is for assets, another is for liabilities and equity. That’s where the balance sheet gets its name for, the fact that the two sides of the equation above – assets on the one side and liabilities plus shareholders’ equity on the other – must balance out. This is intuitive: a company has to pay for all the things it owns (assets) by either borrowing money (liability) or taking it from investors (equity).  The balance sheet presents a company’s financial position at the end of a specified date. Some describe the balance sheet as a “snapshot” of the company’s financial position at a point in time. For example, the amounts reported on a balance sheet dated 12/31/2016, reflect that instant when all the transactions through December 31 have been recorded. You can view the state of the balance sheet in a different time, by changing the date using calendar tool that is located above the table.

Accounting balance sheet example

Let us take a closer look at the report itself. In the EasyERP accounting software, the first half of this report is assets, it may consist of many items, depending on the nature of your business and the current activities. Examples of assets accounts that are reported in the company’s balance sheet include:

  • Cash
  • Petty cash
  • Temporary investments
  • Accounts receivable
  • Inventory
  • Supplies
  • Prepaid insurance
  • Land
  • Land improvements
  • Buildings
  • Equipment
  • Goodwill

Usually, all the assets balances will have a debit balance. Easy ERP accounting software gives you the possibility to always have in-depth look at what does your assets consist of. Assets are built in a tree like structure, so you can discover every branch of any asset by tapping on it.  All of the assets are divided into:

  • Current assets – those which can be converted to cash in one year or less
  • Non-current or long-term assets – which cannot be converted to cash in less than one year

Also, there are four different financial ratios displayed, to inform you about the state of your business. They are:

  • Current ratio – this shows you the relation between your current assets and current liabilities;
  • Quick ratio – this ratio is very similar to the current ratio, except that Inventory, Supplies and Prepaid Expenses are excluded. This indicates the relationship between a value of assets that can be quickly be turned into cash versus the current liabilities;
  • Cash ratio – the cash ratio is an indicator of a company’s liquidity that further refines both the current ratio and the quick ratio by measuring the amount of cash, cash equivalents or invested funds there are in current assets to cover current liabilities. It equals the sum of cash, cash equivalents and invested funds divided by current liabilities;
  • Working capital – is a difference between current assets and current liabilities. This is an indicator of whether the company will be able to meet its current obligations. If a company has current assets exactly equal to current liabilities, this meant that it has no working capital. The greater the amount of working capital the more likely it will be able to make its payments on time.

Now let’s move our attention to the other part of the table. In the EasyERP accounting software, the second part consists of liabilities and equity. Liabilities are the money that a company owes to outside parties, from bills it has to pay to suppliers to interest on bonds it has issued to creditors to rent, utilities and salaries. Current liabilities are those that are due within one year and are listed in order of their due date. Long-term liabilities are due at any point after one year.

 

accounting balance example 2

Current liabilities accounts might include:

  • Current portion of long-term debt
  • Bank indebtedness
  • Interest payable
  • Rent, tax, utilities
  • Wages payable
  • Customer prepayments
  • Dividends payable and others

Long-term liabilities can include:

  • Long-term debt: interest and principal on bonds issued;
  • Pension fund liability: the money a company is required to pay into its employee’s’ retirement accounts;
  • Deferred tax liability: taxes that have been accrued but will not be paid for another year; besides timing, this figure reconciles differences between requirements for financial reporting and the way tax is assessed, such as depreciation calculations.

Using Easy ERP accounting software you can discover the source documents that generated your liabilities, by opening the tree structure, same as we did with assets.

Next segment in the balance sheet is the shareholder’s’ equity. In EasyERP accounting software, it is the money attributable to a business’ owners. It is also known as “net assets” since it is equivalent to the total assets of a company minus its liabilities, that is, the debt it owes to non-shareholders. Retained earnings are the net earnings a company either reinvests in the business or, uses to pay off debt, the rest is distributed to shareholders in the form of dividends.
Treasury stock is the stock a company has either repurchased or never issued in the first place. It can be sold at a later date to raise cash or reserved to repel a hostile takeover.
Now when you are familiar with all the data in the balance sheet of the EasyERP accounting software, you can start to analyze and interpret data from it. Like we have stated before, the balance sheet is a snapshot, representing the state of a company’s finances at a moment in time. By itself, it cannot give a sense of the trends that are playing out over a longer period. For this reason, the balance sheet should be compared with those of previous periods. To view them, just use the calendar tool at the top of the table.

accounting balance sheet datepicker

It should also be compared with those of other businesses in the same industry, since different industries have unique approaches to financing.