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.

Accounting Equation

ASSETS = LIABILITIES + OWNER'S EQUITY

Assets - Properties (Resources) of value owned by a business.

Liabilities - Debts, amounts owed to creditor

Ownership - Is the exclusive right to posses, use, enjoy, and dispose or property.

Equity - Is the owner's contributions to the business.
Equity represents the noncurrent obligations of the entity to the owners. Because equity equals the amount of assets remaining after subtracting liabilities.
Equity is sometimes called net assets. (the term "net" indicates that at least one amount has been subtracted from another to reach this final amount).