Balance Sheet: Understanding Your Numbers Enkel Back-Office Solutions

Fundamental analysis using financial ratios is also an important set of tools that draw their data directly from the balance sheet. Setting up a chart of accounts can provide a helpful tool that enables a company’s management to easily record transactions, prepare financial statements, and review revenues and expenses in detail. The chart of accounts provides the name of each account listed, a brief description, and identification codes that are specific to each account. The balance sheet accounts are listed first, followed by the accounts in the income statement. A trial balance can help a company detect some types of errors and make adjustments to the trial balance and accounting ledgers before the books are closed for the accounting period and financial statements are prepared. Rerun the trial balance after making adjusting entries and again after making closing entries.

Companies often use the chart of accounts to organize their records by providing a complete list of all the accounts in the general ledger of the business. The chart makes it easy to prepare information for evaluating the financial performance of the company at any given time. If you don’t leave gaps in between each number, you won’t be able to add new accounts in the right order. For example, assume your cash account is and your accounts receivable account is 1-002, now you want to add a petty cash account. Well, this should be listed between the cash and accounts receivable in the chart, but there isn’t a number in between them. There are a few things a balance sheet won’t show you, including cash flow, profits and losses and the fair market value of assets such as land.

Reviewing your financial statements

Property, Plant, and Equipment (also known as PP&E) capture the company’s tangible fixed assets. Some companies will class out their PP&E by the different types of assets, such as Land, Building, and various types of Equipment. Because these numbers fluctuate over time, the balance sheet reflects your company’s financial position and net worth on a particular date. There are many different ways to structure a chart of accounts, but the important thing to remember is that simplicity is key. The more accounts are added to the chart and the more complex the numbering system is, the more difficult it will be to keep track of them and actually use the accounting system. A balance sheet is a key financial tool for business owners, executives, analysts and anyone who wants a clear picture of a company’s current monetary position.

A chart of accounts will likely be as large and as complex as the company itself. An international corporation with several divisions may need thousands of accounts, whereas a small local retailer may need as few as one hundred accounts. The complete Swedish BAS standard chart of about 1250 accounts is also available in English and German texts in a printed publication from the non-profit branch BAS organisation. The charts of accounts can be picked from a standard chart of accounts, like the BAS in Sweden. In some countries, charts of accounts are defined by the accountant from a standard general layouts or as regulated by law. However, in most countries it is entirely up to each accountant to design the chart of accounts.

Accounting Newbie?

After you are done with the list of accounts, make sure to distribute the list to any employees that may use it. Even employees that are not involved in the bookkeeping function my need a copy of the chart of accounts if they code invoices or other transactions. It’s used to track all the money that comes and goes in one place while also helping you understand how your money is spent and where revenue is coming from. As a small business owner, it’s important to accurately track all the money that goes into and out of your accounts. Every transaction you make – from payroll to paying down a line of credit – should have its own record. An asset is considered current if it can reasonably be converted into cash within one year.

It is a snapshot at a single point in time of the company’s accounts—covering its assets, liabilities, and shareholders’ equity. The purpose of a balance sheet is to give interested parties an idea of the company’s financial position, in addition to displaying what the company owns and owes. It is important that all investors know how to use, analyze and read a balance sheet. This balance sheet chart of accounts numbering also reports Apple’s liabilities and equity, each with its own section in the lower half of the report. The liabilities section is broken out similarly as the assets section, with current liabilities and non-current liabilities reporting balances by account. The total shareholder’s equity section reports common stock value, retained earnings, and accumulated other comprehensive income.

Organize the chart of accounts to support management decision-making

No, all of our programs are 100 percent online, and available to participants regardless of their location. Liabilities may also include an obligation to provide goods or services in the future. Harvard Business School Online’s Business Insights Blog provides the career insights you need to achieve your goals and gain confidence in your business skills. Balance sheets should also be compared with those of other businesses in the same industry since different industries have unique approaches to financing.