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Cash flow management - Complete Controller

Financial statements and audited reports are preferred to gauge the financial health of the business. The statement comprises an audited report stating whether figures and record-keeping are qualified or unqualified. The balance sheet’s main components are current assets, current liabilities, non-current assets, fixed assets, non-current liabilities, long-term liabilities, and equity (which primarily comprises of capital, retained earnings, and long term reserves.) The second statement is a profit and loss statement, also called an income statement. This statement depicts the revenue and loss position for a specific period. There are various headings under this statement, such as sales, cost of goods sold, depreciation, financial expense, and many other particulars. It gauges the operational efficacy, net profitability, and also the earning per share. The third and perhaps the most important statement is the cash flow statement. This statement is divided into three significant components, cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities. Check out America's Best Bookkeepers

To manage the firm’s cash flow statement effectively, the finance managers adopt their own unique and preferred methodologies for better management. At first, the entire net profit is picked up from the income statement, and non-cash items (such as depreciation and amortization) are added back into the opening figure of the cash flow statement. To simplify the cash flow statement (for management’s ease), finance managers view it from a different tangent. They categorize it mainly into two main domains, which are “Needs and Sources.” Sources are the managed funds that the company generates through its operations and working capital acquired outside the firm. Needs are requirements that are funded through external sources.

The statement is divided into two categories, short-term and long-term. Check out America's Best Bookkeepers

Figures extracted into operating sources are then filtered through operating needs to arrive at a net cash flow position from working capital activities. This figure entails how much cash the firm generated from its primary operations and it foretells the position of working capital requirements or not. If the value is negative, it implies that the inflows are less than the firm’s outflows, and the company requires additional funds to meet its working capital requirements. Upon seeing the picture of the figure, the business is in a strong position to make an educated decision to secure any additional financing requirement or not. Naturally, the business will not take any decision to affect its liquidity and gearing ratio. This will also help the business in analyzing that there is no mismatch in the balance sheet. If such an incident does occur, the business can go into balance sheet restructuring and improve its financial position in the eyes of the shareholder and investor. Check out America's Best Bookkeepers

Non-Operating sources and non-operating needs to tell if the company is facing any stress on its cash flow due to capital expenditure and unnecessary dividend payout. If the pressure is not controlled, the impact can flow into operating sources and needs, which may negatively affect the operations of the business and increase the company’s leverage position.

In essence, cash flow management represents true financial health as opposed to the income statement (where depreciation and amortization are expensed out). The non-cash items are added back into the cash flow statement to get precise net cash flow. Furthermore, all those liabilities and expenses, which are provisioned but not paid out are also added back (such current portion of long-term debt or financial lease). The business’s primary plan is to make a profit and generate revenue. Even if the income statement reveals a healthy profit for the company, due to specific accounting methodologies and deferment entries), it is the management of cash flow which will depict the actual policies that business complies.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers
Personal Balance Sheet - Complete Controller

When a person wants to know their personal worth, they either look at their bank statements or rely on their balance sheet. While a bank statement may not provide comprehensive information, your balance sheet can give you a rough idea about the amount of debt you have in terms of your car payments, loans, mortgage, and other debts. It will also give you a general picture of the equity you have in your name, the sort of savings you have accumulated, and the value of your retirement accounts. However, the concern that arises is whether you can trust your personal balance sheet.

 

While it seems simple to prepare a personal balance sheet, there are areas that can be tricky. One of those is determining the real value of retirement funds because they can fluctuate and may be subject to taxation depending upon when you need to put them into use. As such, it’s essential that you update the balance of your savings and retirement funds each statement period.
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Let’s suppose that, just like most individuals across the US, you have tied up your retirement funds and savings in traditional government-sponsored plans such as the IRAs or the 401(K). It would help if you figured how much tax you will be paying on that income and what will be in your hands. Since mutual funds, bonds, and stocks, are popular retirement fund investments, there is risk of value depletion right before you want to tap into them depending on the volatility of the market and the current economic situation. This situation is one reason you can’t trust your personal balance sheet to know your true net worth.

 

With constant fluctuations in the stock market, Americans need to ensure that they regularly check their statements carefully to understand the true and current value of their savings, such as the 401(K) and IRA. By doing so, they will be able to look at a much clearer picture, well at least on paper. Moreover, due to limited knowledge of financial management, most individuals are unable to differentiate between real wealth and paper wealth, and that is where the situation becomes slightly shaky. In such scenarios, most financial advisors suggest you maintain a personal balance sheet that you need to update at least once a year to keep a check on your progress in terms of achieving your financial goals. Check out America's Best Bookkeepers

 

By preparing a balance sheet, you will be able to review your true worth and get to know how much money is owed by you and what you own. The difference between the two will reveal your actual net worth. If net worth depicts a negative amount, you owe more than you own and prepare yourself for the financial problems you are about to face that may also open up the possibility of going bankrupt.

 

When you sit down to prepare your balance sheet, the current value might mislead you. To avoid being lulled into a false sense of comfort, take into account the unknowns and the impacts that will come when you are trying to access the funds, not only the current value in its current form. It is these factors that affect the reliability of your balance sheet.

 

The following listed are three factors backing up the statement on why an individual must not trust their balance sheet:

Facing an Unwelcomed Tax Hit

If you have $500,000 in 401(k), IRA, or any other traditional retirement account, you would be liable to pay tax on every penny that you withdraw. Yes, that’s correct, every penny! While your balance sheet may not account for this, this is a payable amount. Hence, on withdrawal of $500,000, you will be paying Big Uncle Sam $125,000 if you happen to fall under the tax bracket of 25%, which means you only keep $375,000.

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Estate Impact

Let’s say you die before you were able to withdraw the entire amount from your retirement account; the amount left behind will be handed over to your beneficiaries. However, in this case, Uncle Sam will look to your beneficiaries to clear any tax amount which you may owe while also having to pay additional estate tax on the amount which they inherit.

Plunge/Soar in Market Value of Your Retirement Funds

The figures on your balance sheet in the assets column may not be available when you sell them at market value. The reason for this is that the market and economic conditions may either plunge or soar. There is no fixed certainty as to whether it will rise or plunge just when you need it.

Bottom Line

Therefore, the next time you wish to draft your personal balance sheet, don’t trust the stats that you have in front of you because the three factors listed above are enough to kill your hopes. Instead of facing a tough time in the future, it’s better to start devising a savings strategy today for which you can thank yourself in the future.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers

The asset covers all the accounts that agglutinate the values ​​that the entity has. All elements of the asset are likely to bring money to the company in the future through three different options: its use, sale, or change. The assets are divided into fixed assets (long-term investments), inventories, realizable, and available.

On the contrary, the liability shows all the certain obligations of the entity and the contingencies that must be recorded. These obligations are always economic: loans, purchases with deferred payment, among others.

The net equity can be calculated as the asset minus the liability and represents the contributions of the owners or shareholders plus the undistributed results. In the same way, when negative results (losses) are produced, they will decrease net worth. Net worth or stockholders’ equity also shows the ability of the company to self-finance. They are all those elements that constitute the own financing of the company, for example, the money contributed by the partners the accumulated money of the obtained profits in previous years and the reserves of the company.

The basic accounting equation relates these three concepts: Net worth = Assets – Liabilities. Check out America's Best Bookkeepers

Balance sheet model

All companies must present a balance sheet, but the type of balance that must be presented varies depending on the kind of company.

A company can present the standard model of the balance sheet or the abbreviated model of the balance sheet.

The abbreviated balance sheet may be made by companies that meet two of the following three circumstances:

  • The total asset items do not exceed $4,500,000.00
  • The net amount of your annual turnover does not exceed $8,900,000
  • The average number of workers employed does not exceed 50.

How to take stock

To be able to take stock of the situation, we must take into account three aspects of the company, already mentioned above, that will help us to have an X-ray of the company:

  • Active, which can be circulating (current) or non-circulating (also called fixed, which is the non-current)
  • Passive, which can be circulating (current) or non-circulating (also called fixed, which is the non-current)
  • Net worth

We are going to see the structure of assets, liabilities, and net worth in the balance sheet to know how a balance is made.

Active

To begin to take stock of the situation, current assets must be recorded and considered. That is all those assets with which the company has a permanent duration and may vary in the short term.

Next, the fixed or immobilized asset, that is, the non-current asset, must be recorded. The fixed asset consists of those assets of the company that has a permanent duration and that are not intended for sale, so they do not vary in the long term, such as machinery and transport vehicles, equipment …

Once we have registered it, we must add the current assets and the fixed assets, which will result in the total assets of the company.

Passive

Similarly, as we have done with the asset, to be able to make the balance of the situation, we are going to record the liabilities of the company, both the current liabilities and the fixed liabilities.

Current liabilities include all the debts that the company must assume as well as the set of obligations that must be met in the short term, such as receipts and invoices payable.

On the other hand, the fixed liabilities are those debts and obligations of the company in the long term, such as loans that the company has requested.

Once we have both parties registered, we calculate the sum of the total liabilities, both current and fixed.

Net worth

Finally, all those funds that the company has, such as the contributions of founders or partners, or the benefits that the company has generated.

Calculate the balance sheet

To calculate the balance sheet, we must take into account the structure that distinguishes assets, liabilities, and net worth, according to the model that Quipu presents us.

If the sum of the total of the asset coincides with the sum of the total liability and net worth, the balance sheet will be well done. Asset = Liability + Net equity.

Balance sheet analysis

From the balance sheet, we can analyze the state of the company and assess the ability to deal with debts or develop their activity.

For example, a good situation for the company is one in which many fixed liabilities are available, as well as a large number of liquid assets, which means that the company will be able to meet short-term debts.

In addition to analyzing the financial status of your business, the balance sheet allows you to see if the company has sufficient working capital, known as working capital.

 

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers

Blue ballpoint pen on a quarterly corporate financial report on a table waiting for the financial and investment analyst to analyse before public disclosure. Financial investment analysis concept.
A statement giving a clear picture of the net worth of a business is known as a balance sheet. A balance sheet is a financial tool for all businesses to list their assets, liabilities and their owner’s equity to calculate the actual worth of the business. Creating a financial statement is a standard practice for all businesses. These statements are later audited by governing agencies for taxes and other purposes. The commonly used financial statements of a business include the following.

  1. Income statement:
    1. An income sheet covers the revenues from sales, cost of goods sold, expenses, net income, taxes and earning per share. It is created annually, half-yearly or quarterly.
  2. Balance sheet:
    1. A balance sheet displays a snapshot of the net worth of the business. It is mostly drawn at the year-end and the date is specified on the balance sheet.
  3. Cash flow statement:
    1. A cash flow statement merges both of the above statements to display the utilization of the cash in three main business activities including:
      1. Operating activities
      2. Financial activities
      3. Investing activities

What is a Balance sheet?

A balance sheet is a financial statement which consists of the balances of multiple different ledger accounts. This bookkeeping method helps in listing the ledger balances in the below-mentioned categories so that a company is able to get an idea of their financial position. These categories are:

  1. Assets:
    1. Assets are all properties/belongings/things owned by the business. They can include the properties, cash, machinery and even prepaid expenses.
  2. Liabilities:
    1. Liabilities of a business include all of the expected dues which the business is supposed to clear in coming days or years. They include long-term loans, short-term loans and an accrued account of the business.
  3. Owner’s equity:
    1. Owner’s equity is the capital of the owner who invested in the business. It includes the retained earnings and finances generated from issuing stocks and debentures.

Therefore, a balance sheet can be easily defined as “A statement which consists of assets, liabilities and owner’s equity (capital) on a particular date”. The balance sheet got its name as the closing balance is balanced at the year-end.

Components of a Balance Sheet

  1. Types of assets
    1. Real assets
      1. Fixed assets
        1. Tangible assets
          1. Building
          2. Plant
          3. Fixture and fittings
          4. Furniture
          5. Machinery and vehicles
        2. Intangible assets
          1. Goodwill
          2. Patent rights
          3. Trademarks
        3. Current assets
          1. Quick assets
            1. Stock debtor
            2. Cash
            3. Cash at bank
          2. Floating assets: which keep on converting from one form to another such as:
            1. On sale of goods, the inventory is changed into debtors
            2. On purchase of goods, cash is converted into inventories
          3. Fictitious assets
            1. Preliminary expenses
            2. Loss on issue of shares
          4. Types of liabilities
            1. Fixed liabilities
              1. Debentures
              2. Long-term loans
            2. Current liabilities
              1. Deferred liabilities: Payback period is less than a year and more than a month
                1. Short term loans
              2. Quick liabilities: Payback period is within a month
                1. Bank overdraft
                2. Outstanding expenses
                3. Creditors
              3. Equity or internal liabilities
                1. Reserves
                2. Owner’s equity
                3. Shares capital
                4. Retained earnings

Features of a Balance Sheet

  1. The balance sheet is the final stage of the financial accounts in bookkeeping records.
  2. It is mostly prepared at the year-end.
  3. It is just a statement, not a ledger account.
  4. The balance sheet has two sides which show the assets on the left side and liabilities on the right side.
  5. Both the right and left sides of a balance sheet should always balance.
  6. The balance sheet only reflects the balances of the asset accounts and liability accounts. They do not reflect revenue accounts.
  7. The balance sheet also reflects the business’s solvency.
  8. The balance sheet is designed after the income statement as it requires the net profit or net loss in the equity section.

Why is a Balance Sheet Important?

There are plenty of benefits to creating a balance sheet for your business. However, for smaller businesses, the balance sheet is not an essential requirement as they are not opting for listing their businesses for stocks either they are paying huge taxes. Regardless, a balance sheet can be very helpful in reflecting the complete hearth of your business.

  1. It acts as a snapshot of the business’ financial health on a specific date
  2. Helps you in expanding your business
  3. Can help you get financial aid through investors or loans as your business performance and current health is already documented
  4. Prioritizes your work, showing you all of your liabilities that need your immediate attention
  5. You can even generate financial ratios very easily if you have a properly detailed balance sheet documented

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About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.


 

 

 

balance sheet - Complete Controller

A balance sheet, also known as a Statement of Financial Position, is an overview of a company’s assets, liabilities, and equity at the moment in time. Unlike a P&L statement, which compares revenue and costs over a period, a balance sheet is recorded for any given day, at any given time. A balance sheet is one of 3 statements that companies issue to shareholders or creditors at the end of a financial period. If your company is privately owned, these statements are highly recommended. They will give you an idea of how well your company is doing and where your equity lies on the margin of negative vs. positive. In this article, we will be discussing what a balance sheet is, what it covers, and the basic formats that can be used. To avoid confusion, we will outline the basics of a balance sheet in easy to understand terms and examples for new business owners who may not have expertise in accounting terms. Check out America's Best Bookkeepers

 

Balance Sheet Format

Balance sheets follow two types of formats: account form and report form. The difference between the two is the number of columns. An account form has two columns: assets on the left, liabilities, and equity on the right. A report form is a single column that starts with assets, followed by liabilities, concluded with equity. Most business owners choose to use a more concise report form. Like most assignments, the title of your company is listed at the top, followed by “Balance Sheet,” and the date. Assets are always listed first, followed by liabilities, and equity with no exception. Within these three categories, each has three subcategories. Next, we will look into each category and what the subcategories entail.

 

Assets

Assets are items that your company owns that have a monetary value. As stated before, Assets and Liabilities have three subcategories: current, long-term, and “other.” On your balance sheet, assets should be listed in order of liquidity (how quickly it can become cash in your hand.)

Current Assets

Current assets are assets that can be turned into cash instantly, or within 30 days. Such things include:

  • Bank accounts
  • Accounts receivable (money that customers owe you)
  • Inventory

Check out America's Best Bookkeepers Long-term assets

Long-term assets are assets that can be turned into cash but over a longer period. Unlike current assets, which can be turned over instantaneously or within 30 days. Long-term assets depreciate over time, so besides each long-term asset, depreciation value is subtracted.  For example, you bought a car brand new, for $10,000. In 2 years, the car’s value goes down to $7,000. Your depreciation is $3,000. Depreciation values are the only negative numbers you’ll find in the asset category of your balance sheet. Long-term asset examples are:

  • Equipment
  • Vehicles
  • Long-term notes receivable (if you are not getting paid by a customer within 30 days)
  • Buildings (most of the time don’t depreciate, they go up in value over time)
  • Leasehold improvements
    • The amount a business spends to improve a space so that it functions properly for them and their customers, as long as they are leasing the space. Leasehold improvements, also known as tenant improvements, lose value each year of the lease until they are valued at zero on the day the lease expires. You can write them off the lease term as depreciation on your taxes.

Other Assets

The “other” category is negotiable, depending on your company. These assets are notably intangible. Examples of these other assets include investments, goodwill, trademarks, and licenses.

Liabilities

Liabilities are what your company owes, rather than Assets, which show what you own. Liabilities also come in three subcategories: current, long-term, and owner’s debt.

Current Liabilities

Current liabilities, like the previous format, are always listed first. A simple definition of current liabilities is debt or other dues that need to be paid during the current billing period. Examples of current liabilities are as follows: Check out America's Best Bookkeepers

  • Accounts payable
    • Bills you need to pay
  • Accrued liabilities
    • These are expenses your company accounts for ahead of time, such as payroll, taxes, and interest
  • Lines of Credit
    • What you owe on your credit cards.
  • Loans
    • These can be short-term loans or payments on long-term loans that are due within the next 30 days.

Long-term Liabilities

Long-term liabilities are accounts payable that aren’t due to be paid in full within the next 12-month period. Depending on the size of your company, Long-term liabilities may be summarized in one category or expanded into subcategories. Long-term liabilities may also be referred to as long-term debt or non-current liabilities. Examples of long-term liabilities include:

  • Pension/Health care obligations
  • Long-term loans
    • Equipment loans, auto loans, etc.
    • Long-term leases that cannot be terminated
  • Bonds payable

Owner’s  Debts

Sometimes, instead of taking out a traditional bank loan, owners of companies will loan their own money to the company. If this applies to your company, creditors, or others who will be looking at your balance sheet want to see these types of loans separately. This is where you input the amount due to shareholders or owners of a company.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers