In last week’s segment we looked at Equity accounts. The equity or the net worth of your business represents the real net worth or value of your business at a moment in time. The assets of your company represent everything you own. One important financial goal of most businesses and individuals is to increase net worth. The more value a business has the more attractive it looks to the potential investor or buyer. This means we want to increase the value of our assets while decreasing our liabilities.
Remember from last week’s post that Assets – Liabilities = Equity. Recall also from the video last week that the net income from your P&L flows right into the equity section of your balance sheet. It gets closed out to retained earnings. This means that it is important to make a profit because that is a very direct way of increasing the net worth of your business provided of course that you do not pull those earnings out of the business in the form of shareholder distributions or dividends. When a public company declares a dividend it is a nice benefit to the shareholder, however it does drain the equity of the business.
Let’s take a look at some asset accounts in QuickBooks and talk about how to increase assets in order to increase net worth. Then next week we will look at liabilities.
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