The mindset of people has changed over the years, and people are now into the company more than anything. This is because it gives them the freedom to do whatever they want to do and also be their own boss. But starting the business is not a piece of a cake because it requires considerations such as marketing, management, and accounting. Being passionate about an idea is one thing, but managing it or taking it one step further requires the right skills.
Accounting is an essential element of any business, and a balance sheet is the fundamental element to get right. If you are starting small, then you need first to understand the balance sheet and essential elements it must have. But before you know the basics, it is crucial to understand what precisely the balance sheet is. The balance sheet is the statement of the business which explains the financial position such as the assets, liabilities, and owner's equity at a particular point in time. In other words, it is more like the net worth of the business illustrated on a sheet of paper for a better and clear idea.
If it is your initial years in the business, then it might be just the simplest one with not much data. However, as you go along, the sheet must be extensive and provide information for previous years. If you are not sure how to create a balance sheet, then opt for the best accounting firms in Dubai so that they can give a kick start to your budding business. This article will provide information about the essential elements of the balance sheet.
Essential elements of a balance sheet:
Finances are the key to the success of the business. In the initial years, you will have more expenses than the benefits, but it should start to reverse back as soon as you have an excellent start to the company. But if you are not keeping the record of all the money going and coming from the business, then you might be on the verge of failure. Luckily balance sheet is the easiest way to track the performance and manage the finances.
Following are some of the elements which make a balance sheet perfect and useable:
This is the first element of a balance sheet, and they are typically organized in the way you have products that can be converted into cash. Usually, they are thought off as the liquid assets like the cash or the one which can be readily cashed and non-liquid ones, which will show some hindrance when converted to cash such as land, equipment, and even the building. When you are maintaining a balance sheet, then you need to have a list of all assets; tangible and intangible both. However, there are so many principles and rules which allow only tangible assets to be listed on the sheet.
Just the word literally means liability=accountability and obligation, so it is for the fund owned by the business. The liabilities will be broken down into different categories, such as current and long term. Current liabilities will be the ones which will be due within one year of the time, such as:
- accounts payable
- supplier invoices
- medical and pension payments
- deposits of the customers
- rents of the buildings
- income tax
- credits and interests
- sales tax
On the other hand, long term ones will be due after one year, and it will be about long term debts and deferred tax liabilities.
There is also shareholder's equity, which is the remaining amount from the liabilities from the assets, and this is done through subtraction. The earnings retained by the cooperation are not paid to the shareholders in the form of dividends. They are used to pay the debts or even use for the growth and development of the business. So, in other words, equity will give information about the remaining funds by subtracting the total assets from total liabilities.
Do you need professional accountants for the balance sheet?
The balance sheet is not a complicated process, but if you are new to the business industry, then you need to have the right kind of professional help. It will give your business a kick start, and if you are looking for something like that, then check out the specialized services of best accounting firms in Dubai so that you are creating the right balance sheet. The help from an expert will be able to foresee the financial operations and obligations in the best possible way so that you can have an edge in the market and can retain more customers.
Create an updated and standardized balance sheet to be more aware of the financial health of the business and have a win over fellow competitors.