Business Guidance and Knowledge for the Small Business Entrepreneur
The balance sheet compares the assets of the company against the sources of those assets. Sources include borrowing money to earning the money. Learn about the different classes of assets, liabilities, and the owner’s equity. Included with this are balance sheet ratios and proper analysis of balance sheet accounts.
The Open Job Cost Status Report identifies a project’s actual costs of construction, amounts borrowed or financed, and any customer payments made to date. The net result is the contractor’s net investment into the respective project.
The closing process is designed to finalize the financial information for that period of time. It involves correction of errors, posting omissions and confirming balances
of accounts. Once done, the bookkeeper and management can prepare reports with a high level of confidence with their accuracy.
The balance sheet serves as an historical report. It identifies the accumulated change in value since inception. The balance sheet is organized into two halves and both sides must be equal in value. In addition, the balance sheet is a snapshot of the financial condition at a single moment in time along the lifetime timeline of the company.
Contra information is always reported in parenthesis. Other financial information is also reported using parenthesis with the two primary financial statements. This lesson explains parenthesis in balance sheet accounts.
The equity section of the balance sheet identifies the approximate dollar value of net worth accrued to the owners/investors. Equity type accounts can have both credit and debit balances. By far the most preferred is a credit value. Debit values does not mean that something is wrong, actually it can be a great sign of a good operation.
The financial reports illustrate changes in the businesses’ financial condition over time. Just as man has evolved, a business grows over time. Naturally, most small businesses want to be highly successful and the reports are issued to evaluate change.
In the simple lever and fulcrum machine the force is magnified onto a load. The machine creates a mechanical advantage, a form of force amplification. In business the principle is exactly the same. Except here we are not moving a physical object but the objective is to amplify the profitability or financial gain by using some form of a lever and applying this lever to a fulcrum and generating financial advantage.
Internal control is a subset of the accounting system to aid in proper reporting of existing assets and liabilities. Internal controls over fixed assets alleviate two distinct risks. The primary risk is physical in nature and relates to the asset getting lost, stolen or damaged thereby affecting the value as reported on the financial statements. The second risk is financial in nature related to errors in determining cost basis, useful life, and depreciation assigned; all of which can affect value.
Each risk uses a separate set of controls to minimize or eliminate the exposure and reduce management’s concern that the financial value as reported is incorrect. This article explains the standard set of controls for each risk group.
Financial statements serve the purpose of presenting economic activity and status related to a particular date and over a particular time frame. Accountants record monetary transactions and via financial reports present the information in an easy to understand format. The financial statements for a small business do not have to comply with those of publicly traded operations.
Construction accounting uses job cost reports to inform management of progress and existing issues with projects. There are several different sets of reports. The balance sheet set functions as an overall financial picture for the company.
