Accounting – Improving your Financial Situation
Accounting is necessary in a business for several reasons. A key skill accountants possess is the ability to review your past, helping you make better decisions about the future. By use of the profit and loss account statement, we can make an assessment of your business. As a result we will be able to determine which areas are profitable, and which areas are not so. An external assessment by an accountant is typically less biased. Therefore, you are provided with the ability to pinpoint those areas that require attention for business growth.
Another key piece of information is the balance sheet. This is a statement of a business’s assets, liabilities and shareholder equity. A balance sheet can be described as a “snapshot” of the company’s financial position at a point in time. For example, the year end.
Moreover, the most common definitions used in accounting within a classified balance sheet are:
- Current assets (Such as cash in hand, or assets that will be converted into cash)
- Long-term investments
- Fixed assets (or Property, Plant, and Equipment)
- Intangible assets (An asset that is not physical, a piece of intellectual property for example.)
- Other assets
- Current liabilities (These are amounts that are due to be paid in the current year)
- Long-term liabilities (E.G. money that doesn’t need to be paid in the short term.)
- Shareholders’ equity
The sum of these classifications must match this formula:
Total Assets = Total Liabilities + Shareholders’ Equity
Use of a Balance Sheet in Accounting
By reviewing the difference between assets and liabilities, a balance statement can be used to assess the business’ financial situation. This can be used to see whether a business has enough working capital to continue. However a negative result can show that the business is running into trouble. The balance sheet indicates the net worth of a business. Consequently an example of potential cash flow issues is provided, which may affect the future of the business. As well as this you can see how well a business delivers dividends to its owners or investors.
There are many uses of a Balance and Profit & Loss Sheet, and are just two of the tools that RFL Company Services’ accountants use to help business owners make better decisions. We work with many different types of industry, from Construction to Charities, and Boating to Retail. Because of this RFL Company Services understands there are different nuances between business models and industries, and will advise accordingly.
Undoubtedly, bookkeeping and accounting go hand in hand, read more about bookkeeping here.
RFL Company Services Ltd
Unit 78, Basepoint Business Centre
Yeoford Way, Marsh Barton
Exeter, EX2 8LB
Tel: 01392 826210