A fellow accountant made this comment and I think there’s a lot of truth in it. Most business owners don’t even look at their balance sheet!
Instead they focus on the profit and loss account to understand where their money is coming from and going to.
When preparing accounts we focus instead on the balance sheet at month/year end. We carry out 61 checks; most of which are on the balance sheet.
The balance sheet is a snapshot at the end of the period. The difference between the balance sheets at the start and end of the period is the profit (or loss); even if the expenses are miscoded.
Directors are responsible for safeguarding the assets of the company. This is easily done by checking that you understand the assets (what you own) and liabilities (what you owe) on the balance sheet eg stock can easily be counted to something physical or you can see the car that you bought this year. Outstanding loans can be checked to a bank statement or trade creditors to a list of invoices.
I talk about the main parts of the profit and loss and balance sheet in our Finance for Non-Financial Managers courses. Whilst everybody at Minerva Accountants tries to speak plain English I also think that it is important for business owners to speak a little of the language of business, accountancy, and our FNFM course is free to all our clients.