The Balance Sheet

The Balance Sheet
The formal way of presenting the financial
position for a company is the balance sheet
A balance sheet is a statement showing the
financial position of a person, business, or
other organization
Balance Sheet Example
Features of the Balance Sheet
The Balance Sheet looks like the
Fundamental Accounting Equation
 A = L + OE
 Assets are on the left side and the liabilities
and owner’s equity are on the right side
Features of the Balance Sheet
A Three Line Heading is Used
 WHO? – The name of the individual,
business or other organization
 WHAT? – The name of the financial
statement (in this case the balance
 WHEN? – The date on which the
financial position is determined
Features of the Balance Sheet
The assets are listed in order of their
 Liquidity means the order in which the
assets are converted into cash
 Cash on hand, bank balances are first,
whereas equipment & building are listed
later (they are normally not converted to
cash, but used in business operations)
Look at the Order of Liquidity
Features of the Balance Sheet
The liabilities are generally listed in the
order in which they are normally paid
The two final totals are listed on the
same line on the balance sheet and are
underlined with a double line
Accounts Receivable
Customers of the business will often buy
goods or services with the understanding
that they will be paid for in the future
 These debts owed represent a dollar value
to the business, so the business has a right
to include them among the assets on the
balance sheet
 Each of these customers that owes money
to the business is one of its debtors
Accounts Payable
A business often purchases goods and
services from its suppliers with the
understanding that payment will be
made later
 These debts to suppliers represent an
obligation of the business, so the
business must include them among its
 Each of the suppliers owed money by
the business is one of its creditors