As a health professional, you need to stay on top of your practice’s finances. This includes examining financial documents like the balance sheet, which provides a snapshot of your practice’s assets, liabilities and equity as of a given date.
It also shows how you’ve performed over a specific time period. You can use this information to gauge your practice’s performance and make adjustments. The balance sheet is one of three key financial statements – the others are the cash flow statement and income statement.
The basic form of a balance sheet has assets listed on the left side and liabilities and equity detailed on the right. This format follows the accounting equation, which states that assets equal liabilities plus shareholders’ equity.
Assets include everything your practice owns with monetary value, from concrete items like cash and inventory to marketable securities and prepaid expenses. They can also include intangibles with value, such as patents or trademarks held.
A company’s assets are usually segregated into two categories: current and noncurrent assets. Current assets are anything that could be converted to cash within 12 months, such as accounts receivable and inventories. Noncurrent assets are long-term holdings, including office equipment, building property and land.
Liabilities include payment obligations to outside parties, from bills due to suppliers to salaries and taxes owed. They are also broken down into two categories: current and long-term liabilities. Current liabilities are those that are due to be paid within a year of the balance sheet’s date, such as accounts payable and wages. Long-term liabilities are those that won’t be due for more than a year, such as bonds payable and deferred tax liabilities.
Just as with assets, a company’s liabilities and equity are typically broken down into two categories: current and long-term debt and share capital. Current debt includes amounts owed to banks and lenders, while long-term debt represents all other debts. Share capital is the amount of money that shareholders have invested in the company, with additional funds reinvested in the business.
While a balance sheet is an effective way to see your practice’s financial picture at a given point in time, it has some key limitations. For example, it may report the value of your practice’s assets using historical values rather than their current values, which can make them appear artificially high or low. It may also not account for intangibles such as the brand image and loyalty of your staff.
Fortunately, there are ways to correct these limitations and enhance the usefulness of a balance sheet. A balance sheet can be used to evaluate your practice’s strength in the marketplace, determine whether you have enough liquidity and solvency to pay off your debts and analyze the performance of your operations. In addition, a comparative balance sheet can provide valuable insights by comparing the financial position of your practice at one point in time to that of a previous period. This information can help you double down on successes, correct failures and chart a course for success in the future. Bilanz
