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.
|As on December January 31, 2011|
|ASSETS||LIABILITIES AND EQUITY|
|Accounts Receivable||5,900||Utilities Payable||3,964|
|Office Supplies||4,320||Unearned Revenue||1,000|
|Prepaid Rent||24,000||Interest Payable||150|
|Total Current Assets||$54,650||Notes Payable||20,000|
|Non-Current Assets:||Total Liabilities||$30,314|
|Accumulated Depreciation||−1,100||Retained Earnings||3,236|
|Net Non-Current Assets||$78,900|
|Total Assets||$133,550||Total Liabilities and Equity||$133,550|
Written by Obaidullah Jan, ACA, CFA and last revised on