Making sure your books are balanced before running any reports such as the P and L and Balance sheet is a must. Hello, this is Roberto. I will explain what it means to balance your business books in simple terms. I won’t go into detail, but I will explain enough so that you can understand what it means. If you are not familiar with the accounting equation, you must understand this first. It is the foundation of bookkeeping. The accounting equation is Assets = Liability + Owner's Equity.
Before becoming a bookkeeper, accounting was confusing for me. I saw the accounting language as I would a legal document, confusing. So, stay with me, it is not as complicated as you may think. When you hear others talking about having their business books balanced, all that means is that the accounting equation is true. It means that their Assets (what they own) equals their Liability and Owner’s Equity (what they owe). I won’t get into what assets, liabilities, and owners equity mean in this article or the types of each. In a future article I will. For now, knowing that assets represent what a business owns, and liabilities and owners' equity is what a business owes is enough.
Accounting software is like a calculator, you get what you put into it. This is why it is important to know proper bookkeeping practices. Accounting software in the market today has features that let you automate basic tasks. It is important that you still have a good foundation of basic accounting because software is not error proof. Although software can automate tasks, it doesn’t have reason or human intellect. I use AccountEdge as my accounting software for my business, it is simple, customizable, and powerful. In conclusion, having your books balanced means that the accounting equation is true. I hope this has helped you understand a little better what it means to balance your books.
Lancaster, CA