Balance Sheet

The balance sheet shows the financial position of a business on a specific date. It represents a detailed presentation of the accounting equation.

Basic Accounting Equation: 

                  Assets  =  Liabilities  + Owner's Equity (Capital)

Expanded Accounting Equation

      Assets = Liabilities  +  (Capital - Withdrawal) + (Revenue  -  Expenses)

Note: You should Remember the following:

• The balance sheet, which consists of a detailed listing of the various assets, liabilities, and proprietor's capital on a specific date, shows the financial position and conditions of the organization at that moment in time.
• The balance sheet relies on the preparation of the statement of capital  for the determination of the new proprietor's capital balance.
• The statement of capital in turn relies on the income statement preparation for the determination of the change in capital for the particular period.
• Because of these relationships, the order of preparation of the financial statements never change.

There are two forms that the balance sheet takes:

1. Report form
2. Account form

Although both forms provide identical information their appearance differs according to the use to be made of the forms by the accountant.