Not keeping track of your balance sheet is one of the quickest ways to doom your business. You need to know whether you can make debt payments, if you have too much inventory, and even how much your customers owe you.
The first step to reading a balance sheet is understanding the difference between assets and liabilities…
Days sales outstanding (DSO) measures the average number of days it takes a business to collect payment from their customers. Similar to the accounts receivable turnover ratio, the DSO ratio can be measured monthly, quarterly, or annually, depending on the volume of credit sales your company has.
If you’re using the accrual method of accounting, you’ll need to make sure that any revenue your business receives is recorded in accordance with the revenue recognition principle. This principle states that revenue should be recognized in the same period in which goods or services are provided.
In simpler terms, any...
Trade receivables, also known as accounts receivable, represent the money your business is owed by customers to whom you’ve sold products or provided services. Trade receivables are considered a current asset and are listed as such on your balance sheet, as they’re expected to be paid in less than a year.