What exactly is the balance sheet? In short, a Balance Sheet is a report that gives you a summary of the financial situation of a business on any given date. But what does that mean exactly?
Interestingly enough, it got it's name because the total of the assets is always exactly equal (in balance) to the combined total of the liabilities and equity.
The formula looks like this: Assets = Liabilities + Owner's Equity. This is also otherwise known as the Accounting Equation.
There are many different bookkeeping accounts that appear on the monthly and annual report.
The different bookkeeping accounts you will find can be thought of as all of the things (including money) that you own as well as all of the debts that you owe.
This also includes all of your liabilities such as bank loans, credit cards, and amounts you owe to other people (Accounts Payable).
Additional types of bookkeeping accounts that you will find are the equity accounts. These indicate what your business is worth and include all of the money (investments) that the owners have put into the company as well as all of the money, draws or distributions that the owners have taken back out.
The equity of your company is the total of all of your assets (what you own) minus the total of all of your liabilities (what you owe). This is also known as the net worth of your company.
When determining what you equity is, the accounting formula changes. Now the formula would look like this: Equity = Assets - Liabilities.
Your b/s report may be long or short depending up the type of company you have, how many assets, furniture, equipment, and loans you have. However a report will always have the same overall look and feel. A sample report might look something like this...
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The Balance Sheet
Why do liabilities equal to total assests in the balance sheet?
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Learn about the Accounts Payable
Learn about the Accounts Receivable
Learn about the Chart of Accounts
Learn about the Profit and Loss Statement
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