What Is a Balance Sheet? And Why Does Your CPA Ask for It?
Question: My CPA always asks for a balance sheet, but I don’t know what that is exactly.
Answer: A balance sheet is one of the two standard financial statements that describes the condition of your business. (The other is an income statement.) Your balance sheet is a snapshot of a particular day in your business, and the date is at the top.
A balance sheet lists your assets, liabilities and equity. Assets are what you own, liabilities are what you owe and equity is the difference between the two. On a very basic level, your equity is what your business is worth on that day.
As an example, consider owning a home. If you paid $350,000 for a home (your asset) and have a mortgage with a current balance remaining of $200,000 (your debt or liability), you have equity in your house of $150,000 ($350,000 minus $200,000). In a simplistic sense, this is the balance sheet of your home. It is similar to the balance sheet of your business.
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Harriet Gatter, owner of Accounting Support LLC, was an ad specialty distributor for 23 years and an adjunct professor of accounting at Neumann University. She sold her ad specialty business in 2012, became certified as a QuickBooks ProAdvisor, and now works exclusively with ad specialty distributors nationwide on their QuickBooks, order management and accounting needs.