How to Read and Understand a Balance Sheet - Business Financial Literacy

hello everyone welcome back to the Clara CFO group Channel today we are going to talk about what is a balance sheet what is a balance sheet have you ever been just confused about what is a balance sheet versus what is an income statement well I'm actually going to do two videos I'm going to explain both of those statements to you so that you can feel confident when you need to look and find a number in your business you know exactly where to find it and also that if your accountant gives you a balance sheet or an income statement you know what to look at so you don't look silly because I think well we need to know our numbers but also I also want to help you guys feel more empowered to run your businesses and also know what your numbers are looking like and where to find what you need if that sounds good please stay tuned if you aren't already subscribed to the channel I would love to have you as a subscriber here and always remember that you can also like put any questions or comments that you have in the comment section below and we can engage down there so check that out and we will put other resources in the description box as always let's get into what is a balance sheet so the best way for me to talk about a balance sheet is to give you real quick high level and then we're going to look at a balance sheet okay but high level a balance sheet is a report that you can pull from your accounting system you pull it or you run it as of a point in time so you won't necessarily need to run your balance sheet for one month or one year what you do is you decide the date at which you want to look at your balances and so think about balances and that word to help you figure out what you need because what the balance sheet shows is it shows what are the balances I don't like to use that word when I'm explaining is something but what are the amounts in your accounts at a certain point in time okay so let's make what are the amounts in your accounts at a certain point of time that is maybe what a good example of a balance sheet so for example if you have a bank account and you want to see as of December 31st at the end of the year how much is in that bank account or how much is usable in that bank account that is where you would find that information on the balance sheet this will make more sense as we actually look at it and it's broken up into three different sections assets liabilities and Equity I will show you that as well I think everything else we'll talk about in the screen share so let's go ahead and get over into the screen share okay so here we have a balance sheet that I've pulled this is from a real company and I've taken out anything that looks identifiable so you guys don't know who it is obviously but numbers are just numbers on the paper but I want to give you an example of a pretty simple balance sheet and this one is a cash basis balance sheet so we actually don't have something like accounts receivable on here but we do have a couple liabilities that are showing up and this is just how a cash basis balance sheet is pulled directly from QuickBooks so what you're always going to see is that a assets will be at the very first part of of your balance sheet so really any balance sheet you ever look at assets will be first and the order is always going to be current and then long term similar with liabilities you're going to look at current and long term and usually current means anything that is under a year old or might be due in less than a year so for liabilities for example any things that's due in less than a year is considered a current liability in anything that's longer term over a year would be considered a long-term liability not too hard to remember current assets mean that you need to be able to get it immediately or within the year then it would be yours within like you'd be able to hold it and have it very liquid within the year this matters more like obviously your bank accounts would but this matters more with like Investments you can't necessarily some Investments you make it's not like you can just go and pull them at any point in time so it gets kind of important when you're talking about Investments or also receivables and receivables are things that people owe you and you will be getting most of our accounts receivables are going to be short term but it might be something maybe you have a long-term contract with somebody who owes you maybe tranches of money over time and in that situation you might have a long-term receivable we don't see those too often but that's just an example of something you might see so current assets would be things like your bank accounts bank accounts your checking accounts your savings accounts anything that you actually owe like it's your money it's your money in the business if that's the case it's going to show up in these current assets you can also have things like inventory in on your balance sheet you could have accounts receivable like I mentioned before you could have maybe furniture and equipment so getting down into fixed assets fixed assets are usually considered more long-term assets because you're holding them for a long period of time and usually depreciating them over time those will show up on your assets so think about assets as anything that you own you own it even if you have a note out on it or you you owe some money on it it's something that is like physical or tangible there are intangible assets but most of us it's usually a physical something or a ownership to something like a ownership to the cash in the bank account ownership to an investment there are also intangible assets but I think for the purposes of balance sheet beginner we're gonna not talk about intangible assets right now but think about assets as stuff that you own okay going into the next part of the balance sheet is the liability section and liabilities this is the stuff that you owe own as assets o o w e is your liabilities okay so this is going to be you know credit cards you've been charging stuff on your credit cards you need to pay the credit card this is going to be any long-term loans you've taken out this might be if you have a line of credit and you need to pay somebody this could be a loan from a shareholder for example let's say that the business owner wanted to put money into the business but they wanted to get it paid back that could potentially actually show up here on the liabilities and then any type of other business loan that you might have if you have a auto loan for any car that you might own in the business or also anything that like any equipment loans things like that all of that would go on here keep in mind balance sheets only for business related things don't put your personal house on here as a business asset or put your mortgage payment on here as a liability no that's your personal balance sheet if you want to keep a personal balance sheet that's fine but this is for business only okay so again short term long term we talked about that so you're going to have current liabilities will always be before long-term liabilities and then the last part is equity and I think this is where most people get confused really Equity is just all of the assets minus reliabilities equals your equity and they call it a balance sheet because your total liabilities plus your total Equity equals your total assets okay so in this situation this is is thirty thousand dollars and then our Equity is actually negative in this situation because um basically this business owner has taken out a little bit more cash than what they've actually earned in the business over time so in this situation it is a liabilities minus Equity equals assets okay so that is why it balances so you'll see they'll always have the total liabilities and their total equity and then they will sum these two amounts together and this amount should always equal total assets if they don't equal it probably means there's a little something off in your accounting and you'll need to go and get that checked out so that is the balance sheet Basics I wanted to start with this video if you guys have more questions about the balance sheet please put them in the comments section below I'm happy to go over those I'll either answer them in the comments or I will do another video to kind of dive deeper into what else you might find on a balance sheet okay so hope that helps alright bye everybody foreign [Music] [Music]

Channel: Clara CFO Group

Views: 5,654

Keywords: balance sheet, balance sheet tutorial, balance sheet explained, balance sheet example, how to read a balance sheet, balance sheet analysis, what is a balance sheet, balance sheet for beginners, how to analyze a balance sheet, balance sheet analysis for beginners, balance sheet basics, balance sheet tutorial for beginners, read balance sheet, income statement and balance sheet, balance sheet vs income statement, financial statement basics, how to read and analyze a balance sheet

Id: skOzJt50lXk

Length: 8min 7sec (487 seconds)

Published: Fri Feb 24 2023