Companies create a balance sheet at the end of each accounting period to provide a summary of the company’s financial position. It contains a list of the company’s assets, liabilities and equities and follows the standard accounting equation: Assets = Liabilities + Owner’s Equities. Balance sheets are created in two common forms: a report form and an account form.
A balance sheet contains the listings of all account names and balances for asset, liability and equity accounts. Assets are accounts that track things of value that the company owns. Liabilities refer to amounts a company owes to other businesses or individuals. Equity accounts keep track of owner’s investments and the net profits and losses a company incurs. Both types of statements record the same information; it is simply displayed differently.
A balance sheet is often created in a report form. Companies using this type of statement list the three different sections one on top of the other. It begins by listing the statement name, company name and statement date. Below that, list all assets of the company. Underneath the assets, list the liabilities and finally, list all equities. It is called the report form because there are no individual sides. Each category is simply listed in order.
The account form of a balance sheet is more commonly used because it better illustrates the standard accounting equation. To complete a balance sheet in account form, you begin by listing the statement name, company name and date. The statement is then divided into halves. On the left-hand side, list all assets of the company, including a total on the bottom. The right-hand side is used to first list the liabilities and then the equities. A total of these two components is placed at the bottom. The totals from both columns should be equal. This method illustrates that assets are equal to the total of all liabilities and equities.
Both types of balance sheets break down each of the three components into smaller categories. Assets are separated into current and long-term assets. Current assets are items owned that are easily changed to cash in one year or less and include cash, accounts receivable and supplies. Long-term assets, also called fixed assets, are assets of great value that are harder to turn to cash. Included in this category are machinery, equipment and land. Liabilities are separated into current and long-term liabilities. Current liabilities are amounts a business will pay off in less than one year, while long-term liabilities are amounts a company will not pay off in this time frame.
- Photo Credit Jupiterimages/Photos.com/Getty Images
What Is the Difference Between a Balance Sheet Versus a Profit & Loss Statement?
A complete financial report consists of a balance sheet, profit and loss account and cash flow statement. Each of these components shows...
How to Report HSA Accounts
Filing federal income taxes is never easy. For people with Health Savings Accounts, or HSAs, additional reporting is required. However, the health...
How to Report an IRA Contribution Rollover With Form 5498
One of the advantages of a 401k or individual retirement account is that these accounts are portable. Unlike traditional defined-benefit pensions, which...
Differences Between Money Market and IRA Accounts
It's easy to get confused over financial terminology. Many people have heard of IRAs and money markets, but until you understand their...
Differences in the Post-Closing Trial Balance & the Adjusted Trial Balance
At the end of a financial period, the accounting department of a company or a certified public accountant records adjusting and closing...
Types of Balance Sheets
Balance sheets show the assets and liabilities of a business at one particular date. The type of balance sheet a company creates...