Sunday, June 24, 2018

The Balance Sheet

The “balance sheet” is the financial statement that lists account balances on a given date.  The important thing to remember is that it represents a single moment in time.  The statement is referred to as the “balance sheet” because it presents balances in the asset, liability, and equity accounts at the end of business on a certain date.

The balance sheet lists assets such as bank deposits, accounts receivable, inventory, and equipment, as well as liabilities like loans and accounts payable.

“Equity” is the difference between the assets and the liabilities of a business; equity can also be described as “what you own, less what you owe.”  So, the formula for a balance sheet is as follows:

assets - liabilities = equity, or

assets = liabilities + equity.

The balance sheet actually contains two “sides” or two sections.  One side consists of assets, and the other side consists of liabilities plus equity.  The sum of each of these two sides must equal each other or be in “balance.”  Perhaps, this is another reason why the statement is referred to as the “balance sheet.”

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