What Is A Balance Sheet?
In simple terms, a balance sheet is a financial statement of your assets, liabilities, and capital of a business or other organization at a particular point in time. It balances the income vs expenses to come to an equal number.
Your balance sheet is the basis of your income and expenses. This document is based on the fundamental accounting equation that Assets = Liabilities + Equity.
How Does It Evaluate the Financial Condition of Your Business?
Utilizing a balance sheet for your business captures the total picture of everything you own that has value and what you owe for liabilities. It captures things such as:
- Cash and bank accounts
- Accounts receivable
- Accounts payable
- Inventory
- Equipment, buildings, or vehicles
By keeping track of these items, it will show whether your financial standings put you in a negative or positive position. Utilizing this documenthy-you presents your business in an itemized and monetary way.
Why Is It Important for Tax Preparation?
It is important to have a corrected balance sheet for tax purposes to verify your income for the year. If your numbers are are not balanced, it will not only cause problems within your business, but also on a tax level. Not only is the balance sheet required for your tax return, but it will show any changes in your:
- Income
- Liabilities
- Equity over the year
By having your balance sheet accurate, it supports any depreciation, interest, and asset-related deductions.
Check Everything Off Your List
Understanding how your business manages it’s money and assets are vital when it comes to tax time. Just for you, we put together a PDF file to ensure you have everything you need when you file your taxes.
Download our Checklist Below
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