Reading a Balance Sheet

A balance sheet is a financial statement that provides a snapshot of a business's financial position at a specific point in time. It shows what the business owns (assets), what it owes (liabilities), and the equity belonging to the owners.

Let's walk through how to read a balance sheet and explore its importance.

How To Read A Balance Sheet

Tip: How to find the Balance Sheet in Xero

Why is the Balance Sheet Important?

The balance sheet helps answer critical questions about your business’s financial health, such as:

• Can I pay my bills over the next 12 months?

  If your current assets exceed your current liabilities, then your business is in a healthy position.

  
  

• Is my business building wealth?

  If the business has a positive net worth (Assets > Liabilities), it is generating equity for the owners and avoiding solvency issues.

Golden Rule

Always ensure current assets exceed current liabilities to maintain a favourable financial position and avoid any long-term insolvency risks!

If you have further questions or need assistance, feel free to book a time that works for you or call me on 0439 030 850.

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Tim Goode

Ignite Accountants