The balance sheet is one of the staple financial statements that all business owners and bookkeepers should be familiar with. In the most basic terms, it tells you what you own, what you owe, and your equity (or value) in your company. It is important for business owners to be familiar with this report for their own knowledge of how their business is doing.
How to read the balance sheet, what it tells you, and what to keep an eye on over time is all valuable information, but that’s not what we’re getting into here.
Instead, let’s look at the balance sheet as a bookkeeping process driver. We use it as an ongoing to-do list. As a bookkeeper, consistent review of the balance sheet should be a fundamental and frequent part of your job. This is because it contains the sources of the transactions – bank accounts, loans, credit cards, asset lists, payables, receivables, inventory, payroll liabilities, owner investments, owners draws, and more.
Almost all balance sheet accounts have some sort of reliable source documentation/information that can be referred back to. By comparing how your report reads to your source information, you can tell if account balances are correct or not. If they are incorrect, then we know that the Profit and Loss Report will be unreliable. If they are off then we know that we have more information to gather, questions to ask, and areas to dig into in the books. These are the next steps to take as a bookkeeper.
It is very common that this report is neglected when new, self-taught bookkeepers get started. They typically have learned from somewhere (a prior job, a software training course, the oh-so-vast internet) how to set up a bank feed, reconcile a bank account, enter and pay bills, and possibly run payroll and pay payroll taxes. And that’s where the process stops. A lot of capable, smart, trustworthy individuals who are providing basic bookkeeping services fall into this bucket. They are pretty consistent at what they know how to do. And after that – they don’t know what they don’t know.
If you haven’t looked at your balance sheet for a while, take a look at it. If you and your bookkeeper are unsure and confused about this report and how to fix it, then you or your bookkeeper may be a good candidate for training and mentorship with Gibson Insight.
We start with getting to know your current knowledge base and build from there. And we roll our sleeves up right away by identifying places in the books requiring attention by using the balance sheet as a to-do list.
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