A balance sheet is one of the most important financial statements for any business. It provides a snapshot of what a business owns, what it owes and the net worth at a given point in time. In this blog, we will break down the key components of a balance sheet and explain how to access and interpret one using Xero accounting software.
Content Outline
Key Summary
What Is a Balance Sheet?
A financial statement providing a snapshot of a business’s assets, liabilities, and equity at a specific point in time.
Key Components of a Balance Sheet
Divided into assets (current and non-current), liabilities (current and long-term), and equity, offering insights into financial health.
How to Access Balance Sheets in Xero
Step-by-step guide to generating and viewing balance sheets easily within Xero’s Reports section
Balancing the Balance Sheet
Ensuring assets equal liabilities plus equity, with troubleshooting tips for imbalances.
FastLane’s Accounting Services
Expert support for setting up, maintaining, and customizing balance sheets in Xero for accuracy and compliance.
The Makeup of a Balance Sheet
A balance sheet consists of three parts which are assets, liabilities, and equity. Together, these components paint a complete picture of the financial health of a business.
What is an Asset?
Assets are what the business owns, and they are classified into two different types:
1. Current Assets: These are assets that are expected to be used or turned into cash within a year. Examples of current assets are:
- Inventory
- Prepaid expenses such as insurance or rent
2. Non-Current Assets: These are long-term assets that the business plans to use for more than a year. Examples of non-current assets are:
- Property
- Company vehicles
- Equipment
Assets are often listed in order of their liquidity or how easily they can be turned into cash. This helps businesses immediately identify what can be sold in case of any cash flow problems.
What is Liability?
Liabilities represent what the business owes. Similar to assets, liabilities are divided into two groups:
1. Current Liabilities: Obligations due within the next 12 months such as:
- Payments to suppliers
- Employee wages
- Taxes
2. Long-Term Liabilities: Debts that are not due for at least one year which include:
- Long-term loans
- Mortgages
Liabilities are essential to understand the short-term and long-term obligations of the business.
What is Equity?
Equity is the ownership interest in the business. It includes:
- Investment made by the owners
- Profits reinvested in the business
Equity represents the financial value that would remain after all liabilities were paid off using the assets.
How to Access Balance Sheets in Xero
Xero makes it easy to access your business’s balance sheet. Here is a simple step-by-step guide:
- Log in to your Xero account.
- Go to the Reports section.
- Click on the “Balance Sheet” option under financial reports.
- Change the date range to view the desired period.
Xero will automatically generate the balance sheet, so you will not have to go through the painful process of manually preparing it yourself.
Xero Free Balance Sheet Template:
How to Balance Your Balance Sheet
The balance sheet gets its name because it must always balance. The formula is:
Assets = Liabilities + Equity
If your balance sheet doesn’t balance, it may indicate errors in your financial data. Double-check the following:
- Are all assets and liabilities recorded correctly?
- Have you accounted for all equity contributions and withdrawals?
- Is there any problem with your accounting software or data entry?
How to View a Balance Sheet in Xero
- Go to your Xero Dashboard and click on “Accounting” in the top menu.
- Select “Reports” to access the reporting features in Xero.
- Scroll down to the “Financial Statements” section and click on “Balance Sheet” at the top for the report.
- Balance Sheet is typically viewed as of a specific date such as the end of the month.
- Click on the “compare” button if you want to analyze the figures with the previous month’s numbers.
- Review “Assets” and “Liabilities”
- Review “Retained earnings” which reflect the profit retained in the business.
- Click on the “Export” button to get the report and choose your preferred format: PDF, Excel or Google Sheets for your report.
By following these steps, you can view and analyze your balance sheet in Xero efficiently.
How Can FastLane Help?
Being a professional accounting firm, FastLane helps its clients prepare balance sheets for Xero and comply with financial regulations. Our experienced team can provide tailored solutions to address the specific needs of each client’s accounting.
Our Services Include:
- Customizing financial reports in Xero
- Advising on account balancing
- Ongoing accounting support to ensure accuracy
Conclusion
Understanding the balance sheet provides key insights into your business. By breaking it down into the assets, liabilities, and equity, you can gain valuable insights into your business’s financial position. With Xero and FastLane, interpreting and maintaining balance sheets just got much easier. Ready to simplify your accounting? Explore Xero’s tools today with FastLane. Call us now!
