Accounts that affect the Balance Sheet

What accounts affect the balance sheet report?

Assets & Liabilities Report, can also be referred to as a Balance Sheet or a statement of Net Worth.

A balance sheet shows a business' financial health at a single point in time.

The balance sheet lets you know exactly what things of value a company controls (assets) and who owns those assets: someone else (liabilities) or the business owner (owner's equity), Or, ie. what the company owns and owes.

ASSETS = LIABILITIES + OWNERS' EQUITY i.e. whatever assets aren't being used to pay off the liabilities belongs to the owners.

• Assets - is anything of value your business owns or controls and for which money was paid.
• Liabilities - are those amounts that a business owes to other people, businesses and government agencies.
• Owners' Equity - are the amounts that owner's, partners or shareholders have paid into the business in the form of investment or have reinvested in the business by leaving profits inside the company.

• Click on the Chart icon on the the toolbar.
• A chart of accounts is a listing of the names of the accounts that a company has identified and made available for recording transactions.
• The chart of accounts are divided into sections:
  • Income and Expenses - these accounts that appear in the Profit and Loss Statement.
  • Banks, Asset, Liabilities and Equity - these accounts appear in the Balance Sheet. 

Note:

There are some Other Income and Other Expense accounts that do affect the Balance Sheet.

Purchase of an Asset:

• When your business purchases an asset, you must record the purchase in your accounting records and report the effect of the transaction on your balance sheet. (The accounts that an asset purchase affects in your records and on your balance sheet depends on how you finance the purchase.)
• i.e. The purchase of an asset must be recorded as an expense to the business but must also be added as a new asset with a dollar value.
• Thus, as part of your Chart of Acounts setup, you must have
  • an expense (Other Expense/08. Capital Acquisitions) account for the purchase of the asset (e.g. Motor Vehicle Purchases), which is linked to an Asset account (e.g. Motor Vehicles) using the Balance Sheet Link option.
• Click on the following link for step-by-step instructions on how to Add an Asset Account .
• Click on the following link for step-by-step instructions on how to add an asset account and Setup for Asset Depreciation. 

Sale/Disposal of an Asset:

• When your business sells or disposes of an asset, you must record the sale in your accounting records and report the effect of the transaction on your balance sheet.
• i.e. the sale/disposal of an asset must be recorded as income to the business and the asset with its current book dollar value (i.e. the original cost less accumulated depreciation) must be removed from the balance sheet.
• Thus, as part of your Chart of Accounts setup, you must have
  • an income (Other Income/09. Capital Disposals) account for the sale of the asset (e.g. Motor Vehicle Sales), which is linked to an Asset account (e.g. Motor Vehicles) using the Balance Sheet Link option.

Loans and Repayments:

• When your business borrows money in the form of a loan, you must record the loan and any repayments or further draw downs.
• i.e. The money received must be recorded as income. The loan itself must be recorded as a liability to the business. Any repayments must be recorded as an expense. Any further increases (draw-downs) in the loan must be recorded as income. 
• Thus, as part of your Chart of Accounts setup, you must have:
  • an income (Other Income/11. Non-reportable Receipts) account to record the initial loan amount and/or further increases in the loan amount (eg. Motor Vehicle Loan-Received) which is linked to an Liability Account (e.g. Motor Vehicle Loan Account) using the Balance Sheet Link option.; and
  • an expense (Other Expense/10. Non-reportable Payments) account to record any loan repayments (e.g. Motor Vehicle Loan-Repayments) which is linked to the same Liability Account using the Balance Sheet Link option.
• Click on the following link for step-by-step instructions on how to Add Liability/Loan accounts.