The
balance sheet is not an account. It is simply a list of balances, or should I
say, two lists of balances, the totals of which just happen to agree with
one another.
The balance
sheet contains the balances of all the accounts in a business at one moment of
time.
The balances will either
be DEBIT balances (ASSETS) or CREDIT balances (LIABILITIES - including CAPITAL).
The
Balance Sheet may be represented in HORIZONTAL or VERTICAL forma.
The
horizontal (or side by side) format is easiest to relate to when you first learn
accounting as it illustrates the ACCOUNTING EQUATION (Assets = Liabilities + Capital).
The Assets are shown on the left and the Labilities and Capital are shown on the
right.
This can make people
think it is an account i.e. the left side may be thought of as the debit side,
and the right side as the credit side. It is true that the assets are placed on
the left and liabilities and capital on the right, but there is no DOUBLE ENTRY
involved in the preparation of the Balance Sheet as there is with the TRADING
AND PROFIT AND LOSS ACCOUNT.
The
vertical format is the one to learn because it is the format used by most business
organisations, and is the one expected in examinations. you will however not usually
be penalised for presenting final accounts in horizontal format! Read the question.
Example
Horizontal Balance Sheet (PDF 21.7 kb)
Example
Vertical Balance Sheet (PDF 27.2 kb)
How
to Build a Balance Sheet from Ledger Accounts (PDF
52.9 kb)
The
Balance Sheet is simply a record of all the ASSETS and all the LIABILITIES (including
CAPITAL) of a business.
It
is not part of the double entry book=keeping process as is the Trading and Profit
and Loss Account.
It is rather
like to Trial Balance in that it is simply a list of balances in the accounts
at the ened of an accounting period. It is different however in two important
ways:
1) it only includes
assets, liabilities and capital
2)
it shows how assets = liabilities and capital, in other words it shows how what
is owned by a business (assets) is financed by resources provided to the business
by outsiders (liabilities) and the owner (capital).
The
Balance Sheet summarises the Accounting Equation.
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