The obligation of book keeping which records all income, expenses and changes in assets, as well as the preparation of financial statements, have all companies. Bookkeeping is good and important so you can know who you are required to pay and who needs to pay you, what do you own and whether you do business successfully. However, the legal obligation of bookkeeping is prescribed that the State, in examining them, at any time could know how much you pay your taxes and your other duties required to, and did you pay for them. Business books are uniform and all of them must be conducted in the same manner.
- Balance sheet as part of the overall financial statements of a company reveals the condition of assets, liabilities and your own capital. Balance sheet, income statement and statement of cash flows form a whole that is work of analysts known brokerage houses and investment funds based on. If you want to do investment, it is necessary to know the basic items of the balance sheet and to know how to interpret and compare it with similar companies in the sector.
The balance sheet is divided into two parts, which are represented by formula:
resources (assets) = liabilities (liabilities) + equity (shareholder’s equity)
The assets are what the company used in everyday business, while liabilities and equity are sources of financing of these funds. It is important to realize that the balance sheet represents the financial position of the company at the moment.
- Current assets (assets) are short-term assets that can quickly and easily be converted into cash. The most important items are cash, short-term investments, stocks and inventory. Current receivables are obligations that customers have towards the company which is the subject of analysis. Short-term investments are usually investments in short-term securities such as commercial notes and other securities which may at any time be cashed.
- Fixed assets (assets) are those assets which can not easily be liquidated. The intangible assets include goodwill, patents and licenses. Although these are the most intangible assets that make the company successful but also that in the case of inadequacy and oversized company can lead to the bankruptcy. An important item in fixed assets is their depreciation. Depreciation represents the gradual repayment of fixed assets over their economic lifetime. Accelerated depreciation is the most common way to increase legal costs and reducing the tax base.
- The collection is slow, so try to provide the service or goods only to the quality partners. Before entering into the business, ask if the company is correct in its relations with other companies. Otherwise, you run the risk that cash flow is not sufficient to meet its obligations. Look for the bills of exchange to ensure yourself in the event that you buyer of goods or client is late with the payment. If you do not, then your interest in banks will “eat” your profit.
- Keep your business books maximum neatly, chronologically orderly and transparent. That will ease the tax inspections and reduce the possibility that due to sloppy book keeping inspectors suspect in performing legal activities.