Audience: 

This is the fifth of a series of training posts and videos presenting accounting in simple-to-understand English for Small Businesses and Small Government Contractors.

The goal of RMOHC is to provide client empowerment and financial peace of mind through complete, compliant, and accurate accounting.

This fifth post shows a sample Balance Sheet. Here is the basic structure of the financial statement with no accounts showing. Each account group will be presented individually culminating with a completed financial statement illustrating sample accounts

The statement can appear in two ways: Assets above Liabilities+Equity or Assets on the left side and Liabilities+Equity on the right hand side.

Assets

CURRENT ASSETS – These are assets that will get used up within one year
Cash – Bank: Checking Account, the most active account!
Cash – Savings: Savings Account, savings to be used up in one year
Accounts Receivable: The amount that you customers owe you (and you have invoiced them)
Prepaid Expense – Insurance: A year’s policy that was paid in one payment

LONG-TERM ASSETS – These are assets that will last longer than one year
Land: Investment in land that will take more than 1 year to pay off
Building: Investment in building(s) that will take more than 1 year to pay off
Computers: Equipment that will be of use for more than one year
Depreciation: A tax concept that long-term assets will last only a certain number of years. This needs more explanation in a later post!

Liabilities

CURRENT LIABILITIES – These are DEBTS that will get paid off within one year
Accounts Payable: What you owe your vendors this year (you will have it paid off shortly!)
Loans Payable: What you owe to banks and other lenders that you will pay off within one year
Deferred Revenue: Money a client paid you have not earned yet for services in the future, like a one year subscription.
Accrued Expense: Money you paid a vendor for services/products in the future, like a one year subscription.

LONG-TERM LIABILITIES – These are DEBTS that will last longer than one year to pay off
Mortgage: Loan to buy real estate that will take more than 1 year to pay off
Long-Term Loans: Debt from financial institutions that will take more than 1 year to pay off
EIDL Payable: Government Loan from the COVID period to help businesses survive

Equity

FIRST – Small Businesses do not sell stock. OWNERS contribute and draw funds, they do not buy or sell stock or any type
Owner’s Accounts: A generic account to record how much an owner contributes or takes from the business
Owner’s Contributions: A specific Owner Equity account showing how much an owner invested/paid in into the business
Owner’s Draws: A specific Owner Equity account showing how much an owner has take out/withdrawn from the business
NOTE: Any personal payment or deposit made to a business by the owner gets recorded in Equity
Retained Earnings: What the business has earned during the year and this comes from the Income Statement. It is the result of: Total Income Less Total Expenses during the year.

Sample Balance Sheet:

Here is the Balance Sheet completed. You will see that total of ASSETS = LIABILITIES + EQUITY

Remember:

The Balance Sheet combines what you own (Assets), what you owe (Liabilities), and what you actually own in the company (Equity) in one financial statement (report): The Balance Sheet.  There is a lot of valuable information that you, the owner, as well as outside parties such as banks, vendors, and others, can learn from this report.   

Basic Balance Sheet Formula:   

Assets  =  Liabilities + Owner’s (Partners’) Equity

What your company is worth Formula:

Assets – Liabilities  =  Owner’s (Partners’) Equity (= What your company is worth)

Thank you for reading this post, watch for video series that will be coming out very soon. 

If this was helpful, please share this with your friends and colleagues. 

Here’s to your peace of mind!!
  -Michael

---

Audience: 

This is the fourth of a series of training posts and videos presenting accounting in simple-to-understand English for Small Businesses and Small Government Contractors.

The goal of RMOHC is to provide client empowerment and financial peace of mind through complete, compliant, and accurate accounting.

This fourth post deals with the Balance Sheet, the first of two financial statements that are key to Small Businesses and Small Government Contractors. The other financial statement is the Income Statement, and we will cover it in a new series of posts, “The Income Statement Series.”.

Why is it called the Balance Sheet?

The Balance Sheet shows you have basically entered all your finances correctly.  In accounting, every transaction has two sides (left & right sides) to it, and this is called Double Entry Accounting.  If you enter a transaction on the left side, you have to enter the same amount on the right side so that both sides balance (like a hand scale)!  There is much more to this, but it is not necessary here.

The BALANCE SHEET shows balances from 3 of the 5 account types: 

Assets
Liabilities
Equity
Income
Expenses

The Balance Sheet Formulas:

Assets = Liabilities + Equity

This formula is key to both Small Businesses and Government Contractors. Notice the total of all Assets, and see that it is equal to the combined balances of Liabilities + Equity. In the next post (“Balance Sheet Example”), you will see a sample balance sheet using what we have covered here. 

Your Company’s Worth:
The Balance Sheet Formula stated another way tells you how much your company is worth:

Assets – Liabilities = Equity

In other words, if you take out what you owe (Liabilities) from what you own (Assets), that is what your company is worth.

Remember:

The Balance Sheet combines what you own (Assets), what you owe (Liabilities), and what you actually own in the company (Equity) in one financial statement (report): The Balance Sheet.  There is a lot of valuable information that you, the owner, as well as outside parties such as banks, vendors, and others, can learn from this report.   

Basic Balance Sheet Formula:   

Assets  =  Liabilities + Owner’s (Partners’) Equity

What your company is worth Formula:

Assets – Liabilities  =  Owner’s (Partners’) Equity (= What your company is worth)

Thank you for reading this post, watch for video series that will be coming out very soon. 

If this was helpful, please share this with your friends and colleagues. 

Here’s to your peace of mind!!
  -Michael

---

Audience: 

This is the third of a series of training posts and videos presenting accounting in simple-to-understand English for Small Businesses and Small Government Contractors.

The goal of RMOHC is to provide client empowerment and financial peace of mind through complete, compliant, and accurate accounting.

This third post deals with Equity, the third of 5 account types.

The 5 account types are: 

Assets
Liabilities
Equity
Income
Expenses

What is Equity?

In large corporations, Equity, or ownership, is reflected in Stock.

In Small Businesses, and Government Contractors, the ownership is reflected in Equity accounts (~ownership accounts).  This shows how much the owner(s) has invested in the company (contributed) and taken out of the company (drawn or withdrawn).

Equity, or Owner’s Equity, is ultimately the worth of the Small Business, or Government Contracting Company. It is what the owner has in Assets with the Liabilities removed. 

The formula for this is simple:    Assets – Liabilities = Owner’s Equity

If the company is a partnership, then the Equity account is called Partner Equity. Each partner would have a separate Partner Equity Account. So if Mary and John were the partners, the accounts would be:
–Partner Equity: Mary
–Partner Equity: John

Examples of assets you will recongnize are:

Examples of Equity you will recongnize are:

Owner’s Equity – what the owner has invested and taken out of the corporation

This can be divided into two accounts if the owner wants more detail:
-Owner’s Contribution – what amounts the owner has invested in the corporation
-Owner’s Draws – what amounts the owner has withdrawn from the corporation

If the owner is not set up to be paid by a regular payroll account, then the owner is paid using the Owner’s Withdrawals account.

Retained Earnings (a.k.a. Current Year Earnings) – this is the amount of money the company has earned (or lost) during the current year. This amount is found at the bottom line of the Income Statement.*  

At the end of each year, the amount in the Retained Earnings account is moved into Owner’s Equity so it can reflect earnings of the new year. 

-If the Retained Earnings shows a profit, the account is moved into Owner’s Contributions
-If the Retained Earnings shows a loss, the account is moved into Owner’s Draws

*Income Statements will be presented in a separate presentation.

Remember:

Equity is your ownership in the company whether you are a single owner entrepreneur or partnered with another person. Equity Accounts include:

–Owner’s Equity (Owner’s Contribution & Owner’s Draw) or

-Partner’s Equity (Partner’s Contribution & Partner’s Draw)

Retained Earnings (the bottom line from the Income Statement)

Thank you for reading this post, watch for video series that will be coming out very soon. 

If this was helpful, please share this with your friends and colleagues. 

Here’s to your peace of mind!!
  -Michael

---

Audience: 

This is the second of a series of training posts and videos presenting accounting in simple-to-understand English for Small Businesses and Small Government Contractors.

The goal of RMOHC is to provide client empowerment and financial peace of mind through complete, compliant, and accurate accounting.

This second post deals with Liabilities, the second of 5 account types..

The 5 account types are: 

Assets
Liabilities
Equity
Income
Expenses

What are Liabilities?

They are things you owe or have money you have borrowed, a.k.a debt.  These “things” also benefit the business. 

In “Accounting Speak”:
-You incur a liability when you take on a debt. 
-Liabilities often use the term payable because eventually, you have to pay it off(!)

Examples of Liabilities you will recognize are:

Current Liabilities

Current Liabilities (a.k.a. Short-Term Liabilities) – debts that you will pay off, or are due in the next 12 months
-Loans – money borrowed from a bank, an individual, or another institution (Loans Payable)

-Accounts Payable – money you owe a business or a person for items or services you received for ongoing expenses on credit (you did not pay for it yet). 

-Deferred Revenue – money you received for 1) products or 2) services to perform:
    -you have not yet provided yet
    -and will be provided or performed in the future
    -Can be short or long term

-Accrued Expenses – debt that builds over time to be paid later (Rent, Loan Interest, Legal Retainer)

Long-Term Liabilities

Long-Term Liabilities are debts that you will pay off, or are due in more than 12 months
-Mortgages – a special loan for purchasing real estate

–Long-Term Loans – money borrowed from a bank, an individual that will take more than 12 months to pay

-EIDL Payable – Small Business Administration (SBA) long-term loans (EIDL = Economic Injury Disaster Loan), loans provided in response to the impact of COVID-19 on small businesses

Remember:

Liabilities are debts you owe for money borrowed, or serviced received. 

They include:
                     Current Liabilities:

                                        -Loans

                                        -Accounts Payable

                                        -Deferred Revenue

                                        -Accrued Expenses

                     Long-Term Liabilities:

                                        -Mortgages

                                        -Long-Term Loan

Thank you for reading this post, watch for video series that will be coming out very soon. 

If this was helpful, please share this with your friends and colleagues. 

Here’s to your peace of mind!!
  -Michael

---

Audience: 

This is the first of a series of training posts and videos presenting accounting in simple-to-understand English for Small Businesses and Small Government Contractors.

The goal of RMOHC is to provide client empowerment and financial peace of mind through complete, compliant, and accurate accounting.

This first post deals with Assets, the first of 5 account types..

The 5 account types are: 

Assets
Liabilities
Equity
Income
Expenses

What are Assets?

They are things owned or controlled by your business.  These “things” benefit the business. 

Examples of assets you will recongnize are:

–Money you have – in the bank or your piggy bank (Cash)
–Money folks owe you – invoices you sent them to pay (called Receivables or Account Receivables)
–Current Assets – Prepaid Rent for the next 6 months (things that will benefit you for up to a year)
–Long Term Assets – Land, Buildings (things that you control and will benefit you for a year or more).

Remember:

Assets are things you own or control in your business that help you out. 

They include Cash, Receivables, Current Assets, and Long-Term Assets. 

Thank you for reading this post, watch for video series that will be coming out very soon. 

If this was helpful, please share this with your friends and colleagues. 

Here’s to your peace of mind!!
  -Michael

---