An accurate balance sheet is vital to the flow of financial information in any business. I was speaking with a tax preparer and I mentioned that sometimes the reports we receive from businesses are wrong. She commented back to me that many times they are wrong. In bookkeeping we spend much of our time tracking income and expenses because those are what make up the bulk of the transactions in a business from day to day. Because of this, we can have a tendency to put off keeping the liability, asset, capital and accrual accounts up to date or we just ignore them altogether.
The balance sheet is just as important as a profit and loss statement. Because it tracks assets and liabilities it is a key factor in determining the health of a business. Banks ask for it when giving business loans and the IRS requires the information from it to be entered on tax returns for corporations doing over $250,000 in revenue. By keeping it up to date and accurate you will be ready to tell a client at any time what they own and what they owe. Any business needs to know their assets and liabilities at all times. If they don’t, they will forget to figure it in when calculating how well or poorly their business is doing.
The balance sheet accounts are Assets, Liabilities, Capital and Accrual.
When updating the assets for a company it is important to keep track of accruals such as accumulated deprecation of assets. This is called the book value of assets for reporting and tax purposes. Even though an asset may actually sell for more, it is the book value that needs to be maintained current in the balance sheet. If a business operates on an accrual basis, then the Accounts Receivable will appear on the sheet as well since it is a current asset.
Liabilities can be kept up to date by obtaining statements for every long term and short term liability a company may have. Among these liabilities are those owned to the Federal and State governments for payroll and state revenue taxes owed. If a business operates on an accrual basis, then the Accounts Payable total will be on the sheet as well.
Another item that appears there is the capital accounts. These track how much money a business owner/shareholder has invested into his/her business and how much as been taken out as draws. These accounts are called owner/partner investments and owner/partner draws for partnerships and sole proprietorships and Capital Stock and Retained Earnings in corporations.
The bottom line is that the balance sheet as well as any other statement in bookkeeping needs to be maintained current and accurate. As with anything mistakes happen and sometimes they happen often. Mistakes can be found and corrected if we as bookkeepers are doing our absolute best to keep things current. It is when we let something go saying that we will get around to it that we begin to create problems for ourselves and our clients that aren’t always easily fixed. So take the time to review it on a regular basis and you will always be confident that the books are in order.