Balance Sheet Explained – A Basic Guide

A balance sheet is one of the three most important financial statements. It provides a crucial insight into how your business is doing financially at a given point in time. This article will take a deep dive into the ins and outs of balance sheets.

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Balance sheet explained 

Simply put, a balance sheet displays a business’s assets, liabilities, and owner’s equity at any given point in time. A balance sheet provides an overview of what your business owns, what it owes, and the amount invested by its owners. In other words, it summarizes your business’s worth, so you can better understand its financial position. A balance sheet is also known as a statement of financial position. 

Key components of a balance sheet 

A balance sheet has three main parts: assets, liabilities, and shareholder’s equity. In each part, relevant items are listed and they must match the accounts outlined on your chart of accounts. 

Let’s take a closer look at the three components of a balance sheet:

  1. Assets 

The assets section lists everything your business owns that provides economic benefits. The sub-items are arranged in order of liquidity, or how easily they can be converted to cash. 

The assets section is divided into the two following categories: 

Current Assets: Assets that can be turned into cash within one year. Here are some current assets that companies commonly own:

  • Money in a checking and/or savings account
  • Cash equivalents (currency, stocks, and bonds)
  • Accounts receivable (money customers owe when buying products/services on credit)
  • Short-term investments
  • Prepaid expenses
  • Inventory

Non-Current Assets (Long-Term Assets): assets that will take more than one year to be converted to cash. Some examples of non-current assets are:

  • Land and property 
  • Machinery and equipment 
  • Intellectual assets (copyrights, patents, trademarks, etc.)
  • Goodwill (value from brand name, customer base, reputation, etc.)
  • Long-term investments 
  1. Liabilities 

Following the assets section are liabilities. Your liabilities are everything that you owe to others. Similar to assets, liabilities are also broken down into current and long-term liabilities.

Current liabilities are debts due within a year. Items are listed in order of their due date. Here are some examples:

  • Rent 
  • Utilities
  • Taxes
  • Short-term loans
  • Accounts payable (money owed when buying goods on credit) 
  • Interest payments

Long-term liabilities have due dates longer than one year. For example:

  • Long-term loans
  • Deferred income taxes
  • Pension fund liabilities.
  1. Equity 

Equity is the last section in a balance sheet. It refers to the money owned by the business owners or shareholders. In other words, equity is your net assets. The most common items belonging to this section are:

  • Capital (money put into the business by the owners)
  • Private or public stock
  • Retained earnings (net earnings to reinvest or pay off debts)

The balance sheet golden rule 

A balance sheet must follow a golden rule or an accounting formula as follows:

Assets = Liabilities + Equity

What your business owns always has to be balanced with what it owes plus its equity. This is because your assets either come from your borrowings or your own money. 

What does a balance sheet look like?

Normally, a balance sheet will be divided into two columns: assets on one side and liabilities plus equity on the other. However, it’s not unusual to see a balance sheet looking like a long, endless list. You decide the format most suitable to your business! 

Source: FundNet 
Source: Accounting Guide 

Why is a balance sheet important? 

A balance sheet is an important financial document as it allows you to look at your business’s position in detail. When comparing the current balance sheet to ones in the past, you can analyze and understand your business operations better. Think of it as a regular health check for your company. The balance sheet allows you to make better decisions by giving you an insight into what your business is doing well and what it’s not.

Here are a few financial areas that can be improved by leveraging a balance sheet:

Liquidity 

It’s always challenging for any business to calculate how much cash they have readily available. With the figures on a balance sheet, businesses can work out and analyze critical financial metrics like the current ratio (current assets ÷ current liabilities) or quick ratio ((current assets – inventory) ÷ current liabilities). Interpreting these ratios correctly will help you find the best ways to manage your company’s liquidity.    

Efficiency 

You can determine how efficiently your company uses its assets by comparing your balance sheet with other financial statements. Through calculations and analysis, you’ll be able to determine which areas in the business are generating profits. Then, you can make better plans for future investments or capital allocation.  

Risks

Your balance sheet summarizes how much debt you owe, which can tell you how much financial risk you face. Being aware of your debt situation allows you to make wiser business decisions and avoid potentially damaging events that could lead to bankruptcy. 

Who prepares the balance sheet?

Depending on your business’ size and model, the balance sheet may be prepared by different people. For example, in a small privately-owned business, a bookkeeper will prepare the balance sheet. For a mid-size private firm, their accountants may prepare it first, then have it reviewed by an external accountant. 

Key takeaways 

The balance sheet is an important financial document that you can’t overlook. Understanding what it is, how it works, and how it correlates to the rest of your business are a great advantage for any business owner. 

What’s Shoeboxed?

Shoeboxed is an application that lets you digitize every paper receipt in just a few seconds. Shoeboxed also automatically extracts and categorizes important data from your receipts with human verification

Quick, reliable, and trustworthy, Shoeboxed promises to organize your piles of documents in the best way possible! 
Go paperless for free with Shoeboxed!

Expensify vs Shoeboxed: Which One Is for You?

Whether you’re self-employed or a business owner, choosing the perfect accounting software for your business is very important. There are countless software and apps on the market with various features, pricing, details, and so much more to check. We understand that not all people have time to test dozens of solutions. That’s why we came up with a complete comparison between the top choices for receipt tracking and expense management software: Expensify vs Shoeboxed

An overview: Expensify vs Shoeboxed

1. Cross-platform compatibility

Different people have different needs. Some love iOS, while others are loyal to Android. And there are Windows users, and there are people who like to access things on a browser. This situation is especially true when working as part of a team.

Both Shoeboxed and Expensify are available on Android and iOS platforms. You can also use them in any browser of your choice without any issues. This will help you keep your receipts in sync at all times.

2. Interface

Since most of us use smartphones to scan receipts, the app’s interface is an important part to consider when choosing the right accounting app. Both apps are easy to use with the basic functions displayed right on the portal. The interface is clean and intuitive with a focus on simplicity and speed.

A comparison between Expensify vs Shoeboxed’s interface

3. Main features

The basic functionality remains the same. You scan an expense receipt, and the app will extract the key data such as items, quantity, price. They will also categorize them by vendor, the total amount, date, and payment type. There are various categories to further classify your expenses like Mileage, Groceries, Entertainment, Office Supplies, etc. Then, the apps create a digitized version of the receipt synced with your cloud account. 

Both apps allow you to arrange receipts by trips, create a report, and submit it for approval. Users can also track mileage for business trips with both apps. Additionally, Expensify offers a per diem functionality where an individual is given a daily allowance, and you can use the app to keep track of it on a daily basis.

On the other hand, Shoeboxed has one feature that Expensify lacks. If you have a bunch of receipts and no time to scan them, you can mail them straight to Shoeboxed‘s processing facility for free with our postage-paid Magic Envelope™. Shoeboxed will scan the receipts, turn them into organized and actionable digital data, and upload them to your account. 

This mail-in feature that Shoeboxed offers helps you clear your desk and drawers and bring you up to speed. This unique service is extremely useful for small business owners or freelancers—those who have to handle a lot of work on their own. By doing this, you can free yourself from the paperwork and focus on improving your business’s core value. 


What’s more, Shoeboxed ensures that all your digital receipts are human-verified and audit-ready. You can rest assured that your receipts are legibly scanned, clearly categorized, and accepted by both the Internal Revenue Service and the Canada Revenue Service in the event of an audit. This is the best choice for freelancers and business owners when it comes to tax season. 

4. Third-party integration

Both Shoeboxed and Expensify integrate with various third-party apps and software such as Quickbooks, Intuit, and Xero. Expensify also connects with Microsoft, Oracle, SAP, Bill.com, Uber, and several other popular services. 

5. Pricing

Pricing is definitely an important factor to consider, especially if you’re looking for a scalable solution.

Shoeboxed offers three primary plans. The Startup plan (for individuals and freelancers) begins at $18/month, allowing you to scan and store up to 900 documents (both physical and digital) per year. If you are a professional or small business owner, go for the Professional plan. With $36 for two users, this plan offers you 3600 documents/month. If you own a business with high volume, the Business plan at $54/month with 7200 documents/month is the most suitable option.

On the other hand, Expensify takes a simpler approach limiting the number of plans available. The individual plan begins at $5/month with no limit on receipts scanning. If you’re working in a team, Expensify offers a $9/user/month plan and a corporate plan that begins at $18/user/month. They also have an enterprise solution customized based on your business’s demands. 

Comparison: Expensify vs Shoeboxed

To help you better visualize the differences between Expensify vs Shoeboxed, we’ve made this handy chart for you: 

ExpensifyShoeboxed
OverviewExpensify is an expense management system for personal and business use. Expensify helps users scan receipts, track expenses, and book travel all in one app.Shoeboxed is the painless solution for freelancers and small business owners to track and digitize their receipts, maximize tax deductions and prepare audit-ready reports.
Platforms supported– Web-based
– iOS
– Android
– Web-based
– iOS
– Android
Language supportedEnglishEnglish
Targeted customers– Freelancers
– Small businesses
– Mid-sized businesses
– Large enterprises
– Freelancers
– Small businesses
– Mid-sized businesses
Customer support– Email
– Phone
– Live support
– Video tutorials
– Phone
– Online
– Video tutorials
Features– One-click receipt scanning
– Credit card import
– Multi-level approval workflows
– Corporate card reconciliation
– Accounting, HR, and travel integrations
– Multi-level coding
– Advanced tax tracking
– Audit and compliance
– Delegated access
– PCI-compliant security
– Automatically identify currency
– Receipt scanning
– Optical Character Recognition
– Human data verification
– Scanned receipts storage
– Receipt search
– Mobile receipts tracking
– Mileage tracking
– Data digitization service
– Gmail receipts archiving
– Business cards management
– Tax filing
– Expense reports
– Multiple international currencies
IntegrationsExpensify integrates with various accounting software as well as HR, travel, and accommodation systems and applications:
– Accounting: Bill.com, FinancialForce, NetSuite, QuickBooks, Sage, Xero, Scan Snap
– Transport: Automatic, Grab, Lyft, Trainline, Uber
– Accommodation: Hotel Engine, HotelTonight, Roomex, TripActions
– Travel Bookings: Flight Sugar, Gallop, Jettly, Lola, Pana, TravelPerk
– Travel: NexTravel, TripActions, Trip Catcher
– Other Integrations: Accelo, Global VATax, PayPal, RevelPOS, Microsoft Dynamics, Financial Force, Workday, TSheets
Shoeboxed integrates with the following third-party solutions:
– QuickBooks
– Xero
– MYOB
– Dropbox
– Evernote
– GoDaddy Online Bookkeeping
– WaveAccounting
– FreshBooks
– OneSaas
– Saasu
– Salesforce
– WorkingPoint
– Bench
– ScanSnap
PricingAlong with the free version, Expensify offers two pricing plans: 
– The Collect plan at $5/user/month
– The Control plan at $18/user/month
Along with the free version, Shoeboxed offers three pricing plans: 
– The Startup plan at $18/month
– The Professional plan at $36/month
– The Business plan at $54/month

In the end, the choice is yours

By comparing the features, integrations, and pricing with your business’s needs, you’ll be able to decide which app is the best fit for your business. Don’t forget to get a free trial before subscribing to experience how the program can benefit you in practical situations.

If you’d like to see more comparisons between Shoeboxed and other accounting apps, let us know in the comments! 

Don’t forget to subscribe to the Shoeboxed blog for more engaging stories about entrepreneurship, staying organized, DIY accounting, together with Shoeboxed‘s latest product updates. 

A Small Business Guide To General Ledgers

The general Ledger is nothing new to the accounting world. It was invented hundreds of years ago, along with the double-entry bookkeeping system. However, if you’re a new business owner and have trouble understanding it, this article is for you! 

Read on to know what a general ledger is, why it is important and whether your business needs one. 

What is a general ledger?

To better understand general ledgers, let’s first go through a brief explanation of the bookkeeping process. We’ll start with journals. A journal is known as a book of original entries. That’s where you record every business transaction when it first happens, sothe records are always chronological. Once this is done, transactions in the journal are grouped by accounts (e.g., cash account, sales account, etc.). The categorized data are then posted to the general ledger, also named the book of final entries. The general ledger contains a separate form for each account, which is why ledger entries appear in the order of accounts instead of in chronological order as they are in the journal. 

Think of a general ledger (GL), or a nominal ledger, as a collector. It collects all financial data from journals, then summarizes and categorizes them systematically.  

An example of the general ledger

Below is a simple example to show you how bookkeepers record data; first in a journal, then in a general ledger. 

Example: A company sold goods to customers for$55,000, paid in cash, on July 16, 2019.

First, the transaction is recorded in the journal with a double-entry system and relevant details such as the date. The data is then posted to the Cash account and Sale account in General Ledger. 

general ledger example
Source: WallStreet Mojo

Categories of general ledger accounts 

The general ledger typically includes a list on the front page called the chart of accounts, which names all the accounts documented within. An account ledger refers to the documentation of a single account. 

Generally, most companies use the following five categories to group hundreds of accounts to organize their records: assets, liabilities, equity, revenues, and expenses. 

  1. Assets: Assets are any resources owned by the business and provide economic benefits. Assets can be tangible like cash, inventory, property, equipment, or intangible like trademarks and patents.
  1. Liabilities: Liabilities are debts owed by the company. There are two types of liabilities: current liabilities and non-current liabilities. Employee salaries and taxes are current liabilities, while bank loans, mortgages, and leases are non-current liabilities as you pay the debts over time.
  1. Equity: Equity is the difference between the value of the assets and the liabilities. Equity can include common stock, treasury stock, and/or venture capital. 
  1. Revenue: Revenue is what a business earns from the sales of its products and/or services, such as sales, interest, and royalties.
  1. Expenses: Expenses include all spending required to make a product or provide a service. Some examples are rent, utilities, travel business fees, postage, and stationery. 

Double-Entry Bookkeeping

The double-entry bookkeeping method makes sure that the general ledger of a business is always in balance. In account ledgers, every entry of a financial transaction debits one account and credits another in the same amount. For example, when you pay an expense of $1000, you debit $1000 on the expense side and credit $1000 on the cash side.

This bookkeeping system ensures that the general ledger is always in balance to maintain the accounting equation:

Assets = Liabilities + Equity

What does a general ledger look like?

The image below shows a common template of a general ledger. 

Double-entry Bookkeeping
Source: Double-entry Bookkeeping

As you can see, a general ledger sheet usually has a Journal reference column. Not only does it make it easy to keep track and reconcile if there are any discrepancies, but it also plays a vital role as an audit trail.

After being filled out, an account in the general ledger might look like this:

Source: Accountancy Knowledge 

Listed below are a few resources that offer free general ledger templates that you might want to check out (in case you don’t use accounting software):

After all, it’s you who decides what your general ledger’s format should look like. This depends on your business model, your accounting system, and your country registration as well. 

Why is a general ledger important for your business?

There are several reasons why the general ledger has survived for so long in the standard accounting procedure. Here are the two main reasons that can give you some insight into why:

It’s the foundation for your business’s financial statements. 

Financial statements indicate your business’s current financial health and growth trends in the future. For example, the balance sheet (statement of financial position) can tell you how much your business owns and owes or how much you would have left if you sold all of your assets and paid off your debts. The income statement (profit or loss) shows your revenue and expenses incurred in the fiscal year, deciding if and how much you gain or lose. The cash flow statement lets you know how cash has been allocated and earned over the year, revealing your spending habits, profit generators, and reliable forecasts. All of these reports and information are essential and invaluable to any business. In fact, one of the core objectives of accounting is to produce financial statements. 

All of these statements are made from the general ledger’s data. Accountants extract relevant and important information from the general ledger to create each report. 

It helps you manage expenses better.

Making the right spending decisions can be tricky. Make the wrong one and not only could you lose money, but there could also be additional consequences. To make smart decisions, you need to be fully aware of your spending habits, for instance, which areas of your business consume a lot of resources but don’t translate into a positiveROI? Or which area has the potential to generate more profits but doesn’t get enough attention? You can find the answers to those questions through the general ledger. Keep accurate, organized records and maintain your most useful source of financial advice. 

Plus, you should also pay great attention to every transaction’s receipt so that you can go over and double-check your spendings at any time. A well-managed receipts system means better control over your expenses. Shoeboxed can help you with just that! Shoeboxed is a receipt scanner app that helps you digitize every single paper receipt in just a click. Your receipt data will be automatically extracted and categorized with human verification

Why risk your money with the stacks of receipts lying everywhere in your office? Try Shoeboxed and experience the paperless world. 

General ledger codes – What are they?

If you’re dealing with a large number of transactions per month, it can get really difficult to keep your general ledger organized. That’s when general ledger codes (GL codes) come in. GL codes are the numeric codes that you assign to different accounts, quickening your recording process and making it easier to keep track of your accounts and transactions. 

It’s totally up to you to design your own coding system. For example, many business owners prefer to assign their revenue accounts with numbers starting at 100 and expense’s ones starting at 200 (e.g., 202 – phone payments, 203 – electricity payments). Or you could assign four-digit codes for all your accounts in your own unique way that suits your business. 

This image is an example: 

  Source: Planergy 

Final thoughts 

The general ledger groups and records all financial transactions within your business. It can be difficult to grasp at first, but once you understand and use it, you’ll realize how powerful and beneficial it can be for your business. More importantly, it helps you produce your financial reports – the invaluable tools that allow you to understand and improve your business’s financial health.