It never fails to amaze financial professionals in companies how little some directors or shareholders actually understand the foundation records of financial accounts – viz. The Balance Sheet. Similarly it is equally true that people on the governors or executive overseeing bodies of the public sector have a similar problem of translating the figures they see onto the reports to know understand how the business is working. From my own experience I have to say there is also such a problem with elected representatives. This is also a problem for small businesses owners grown from self employment or sole trader and having to produce financial accounts for the first time. Of course the accountants will produce the financial accounts. This article is about understanding them which is a different level of problem.
The Balance Sheet is a view of business performance on a particular day – usually the last day of the financial year. It can be compared with this day a year ago to add more information. It shows your assets, that is, what the company owns (such as a building or equipment) and what is owed to it at this time ,as well as the companies liabilities either bills year to pay or loans that are owed. The difference between assets and liabilities shows whether the company is solvent