In Quickbooks, a balance sheet is an essential component of your business’s financial records. This document features two columns, one of which is a list of assets, whereas the other is a list of debt and liabilities. Analyzing your business’s balance sheet can help you understand the true value of your business. If your business’s debt and liabilities are greater than its assets, for example, it indicates a low (or no) value. But what exactly constitutes an “asset” on a balance sheet?
Cash on your business’s balance sheet refers to money in hand, deposits in bank accounts and any short-term investments that you can easily convert into cash.
Securities on your business’s balance sheet include market securities like stocks, bonds, certificates and other investments that you can easily trade.
While most business owners are familiar with cash and securities, many are confused when they see “A/R” listed on their balance sheet. A/R refers to accounts receivable. Not to be confused with accounts payable, accounts receivable is money owed to your business by a customer, client, vendor or any other party. Many businesses allow their customers or clients to pay after their product has been delivered or service has been completed. Until the customer or client pays the required amount, the transaction is considered A/R. If your business has significant money tied up in A/R, you should follow up with customers or clients on a regular basis to request payment.
As the name suggests, inventory on your business’s balance sheet refers to tangible equipment, products, goods and other items that you can sell. Inventory is considered an asset because of its monetary value. You can essentially sell inventory to turn it into cash, thereby making it an important asset for many businesses.
Finally, prepaid expenses on your business’s balance sheet are ongoing, regular expenses needed to conduct your business’s operations. According to Intuit, insurance is a common type of prepaid expense incurred by many businesses. When a business purchases insurance, it must record those insurance payments as prepaid expenses on its balance sheet.
It’s important to note that there are also property and intangible property assets on balance sheets. These two assets, however, are considered non-current assets, whereas the other assets described in this blog post are considered current assets.
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