Small business owners should be familiar with their balance sheet in regards to how solvent the company is. There are a list of terms that help in understanding the balance sheet:
Assets- Can be current (used within a year) or fixed (benefits last longer than a year. Examples of current are: Cash and Accounts Receivable. Examples of fixed are building and machinery. Cash- Consists of currency/coins on hand, checks from customers, balance in bank accounts. Accounts Receivable-The amount of money owed to the business by your customers after goods and/or services have been provided. Inventory-An asset of the company, value of products waiting to be sold.
Liabilities-Can be current (debts payable within a year) and long-term (debts payable over a period of time greater than a year) Accounts Payable-The amount of money you owe creditors in return for goods and/or services delivered. Usually paid on terms of 30, 45 or 60 days. This is a current liability. Loan Payable- An example of a long term liability, bank loan payable over a period of greater than a year.
Current Year Income (Loss)- A company’s total earnings in the current year. Retained Earnings-Earnings that are reinvested in the company and not paid out as dividends.
