Balance Sheet

A balance sheet also known as the statement of financial position tells about the assets, liabilities and equity of a business at a specific point of time. It is a snapshot of a business.

A balance sheet is an extended form of the accounting equation. An accounting equation is:

Assets = Liabilities + Equity

Assets are the resources controlled by a business, equity is the obligation of the company to its owners and liabilities are the obligations of parties other than owners.

A balance sheet is named so because it lists all resources owned by the company and shows that it is equal to the sum of all liabilities and the equity balance.

A balance sheet has two formats: account form and report form.

An account form balance sheet is just like a T-account listing assets on the debit side and equity and liabilities on the right hand side. A report form balance sheet lists assets followed by liabilities and equity in vertical format.

The following example shows a simple balance sheet based on the post-closing trial balance of Company A.

Company A
Balance Sheet
As on December January 31, 2011
Current Assets:Liabilities:
Cash$20,430Accounts Payable$5,200
Accounts Receivable5,900Utilities Payable3,964
Office Supplies4,320Unearned Revenue1,000
Prepaid Rent24,000Interest Payable150
Total Current Assets$54,650Notes Payable20,000
Non-Current Assets:Total Liabilities$30,314
Equipment$80,000Common Stock100,000
Accumulated Depreciation−1,100Retained Earnings3,236
Net Non-Current Assets$78,900  
Total Assets$133,550Total Liabilities and Equity$133,550

Written by Obaidullah Jan, ACA, CFA and last modified on