Balance sheet is a snapshot in time of the amount of assets and liabilities that you had in your business at a specific time. It could be today, it could be yesterday, it could be the end of last month. It’s up to you when you run the report. Basically, it takes a picture of where your business sat at that time.
Assets:
Assets are things that you own. Theya re generally things like bank accounts, accounts receivable, work in progress or stock. Then we’ve got fixed assets – Fixed assets are things you can kick, things like computers, cars, plant and equipment. Then there’s some funny little assets called intangible assets. They’re things like borrowing costs, setup costs of a company, or legal expenses to do with trademarks and patents. In a nutshell, assets are the things that you own in your business.
Liabilities:
Your liabilities are what you owe to other people. It could be accounts that you have for the stock that you’ve purchased, it could be a bank overdraft, could be credit cards. It also could be loans for equipment, loans for cars, loans to the business owner for putting money in to start the business or bank loans for use for running the business. It changes from person to person and business to business.
Keep in mind that Assets and Liabilities are generally broken up into Current or Non Current. This isn’t to confuse you, it’s to differentiate between different kind of Assets and Liabilities. Current refers to something that is going to happen within the next 12 months. For assets, these are assets that you can liquify in the next 12 months, usually Bank Accounts, Stock and WIP. For Liabilities, they are the things you need to pay within the next 12 months, usually Trade Creditors, Tax (including PAYG,GST, Super) and in some instances, the next 12 months payments of loans.
Net Assets (or Equity)
Net Assets are your assets minus your liabilities. This is sometimes referred to as Equity. What we like to see as business advisors is that equity is increasing. That means that you’re reinvesting in the business, you’re not pulling out every cent you earn to live on that you’re reinvesting in stock or plant and equipment that you’re actually growing the value of your business.
In a nutshell,as I said before, a balance sheet is a snapshot snapshot in time of your business at any given time.