A balance sheet is one of the most fundamental financial statements that a company produces. It covers a company’s assets, expenditures, and shareholder’s equity.
The financial statement gives an overview of the company’s financial status.
It gives a chance to other lenders, stakeholders, and investors to learn about your business.
A balance sheet provides information on the company’s assets, and on stakeholders who have invested in the business. This data plays an instrumental role in business decision-making.
NetSuite helps businesses create well-organized monthly balance sheets using its powerful capabilities. Creating a NetSuite balance sheet by month saves companies a significant amount of time by automating data entry.
Let’s learn how you can generate a balance sheet in NetSuite, why you need a balance sheet and more.
Balance Sheet Explained
A balance sheet determines a company’s book value. The financial statement includes the company’s expenditures and shareholder equity. The sum of the two is subtracted from its total resources.
Company analysts and external analysts can evaluate how a company is performing financially, by comparing its monthly balance sheets.
This makes balance sheets fundamental for investors, the organization’s stakeholders, and even regulators who are not part of the company.
A balance sheet accounts for:
Anything under the company’s ownership that has a monetary value is considered an asset. This includes goods and raw materials that are liquid and can be converted to cash.
Liabilities refer to what a company owes to a lender, for instance, rent, debts, utility payments, taxes, or money payable to suppliers.
- Shareholder’s Equity:
The net worth of the company is referred to as the shareholder’s equity. It is equal to the money that would remain if the company sold all its assets and paid all its debts. Public and private owners of the company own the shareholder’s equity.
The Significance of a Balance Sheet
Ultimately, a balance sheet improves your business over time. Its benefits are extensive and benefit the business in several ways.
Preparing a balance sheet allows companies to assess their financial position. Since it contains information on assets, resources, and liabilities, companies can evaluate where they stand, financially.
Financial ratios determine a company’s profitability and how sustainable the company is. Balance sheets allow companies to determine different financial ratios such as the current ratio and the liquidity ratio.
Balance sheets show the net worth and wealth of a business. This information can play a key role when a company needs to borrow loans from lenders or banks.
A balance sheet provides the current financial position of a company. Monthly balance sheets can be compared to evaluate how sound the company is financial. Hence, companies can make better decisions based on this information.
How To Create a NetSuite Balance Sheet by Month?
Understanding how a balance sheet is created can help resolve potential errors before they evolve into bigger problems.
Here is a step-by-step guide that covers how you can build a basic balance sheet for your business:
Fix the Reporting Date:
When a balance sheet is created, a reporting date is set which displays the company’s assets, liabilities, and shareholder’s equity on a particular date.
Balance sheets are usually created quarterly, monthly, or annually.
Categorize Your Assets:
Enter your assets corresponding with the date you’ve entered. You can list assets together or enter them into line items. This makes it easier for analysts to understand where your assets came from and what they are.
There are two types of assets:
- Current Assets: Include cash, inventory, short-term marketable securities, and accounts payable.
- Non-current Assets: long-term marketable securities, property, intangible assets, and goodwill.
Categorize Your Liabilities:
You will now need to categorize your liabilities, either in line items or totals. Just like assets, there are two types of liabilities:
- Current Liabilities: accounts payable, expenditures, deferred revenue, long-term debts
- Non-current Liabilities: long-term debts, non-current liabilities, long-term lease duties
Calculate Shareholder’s Equity:
With a privately owned company, shareholder’s equity calculations are much simpler, but that is not the case with publicly held.
The calculations consider several kinds of stocks.
Add Total Liabilities and Shareholder’s Equity and Subtract it from Assets:
Compare assets with total liabilities and shareholder’s equity. This will balance out the financial document. To do this, subtract total liabilities and shareholder’s equity from total assets.
Balance sheets don’t always balance. This could be because of incorrect entries or miscalculations.
Whether you’re a small business owner or a large-scale enterprise, understanding the financial position of your company is the key to success.
The balance sheet allows both companies and stakeholders to be abreast of the financial standing of the company.
Regularly updating this data, by creating a NetSuite balance sheet by month, you can make better decisions. It also equips you with the weapons you need to improve your company’s overall financial health.