The Balance Sheet
This is a statement showing the financial position of a person, business or organization on a
certain date.
Financial Position is the status of the business in terms of
A, L and OE.
1.It is set up like the accounting equation;
Assets on the left = Liabilities & OE on the right.
2. Three-line Heading:
Who - Name of Individual
What - Name of the Financial Statement
When. - Date on which the financial position is determined
3.Assets are in their order of Liquidity
Liquidity: Order in which assets can easily be converted into cash or used up within
one year. (Cash, A/R, Supplies)
Cash: Cheques, bank balance, $ orders, Debit & Credit Card Receipts
Accounts Receivable: Listed in Alphabetical order.
Note: don’t mix the family assets with the Business’ assets. May have a family boat but it
doesn’t show up on the B/S statement.
4. Liabilities represent debt. They are generally listed in the order in which they are
most easily paid off.
5. Owner’s Equity: On the right side beneath liabilities. Thus, the owner’s claim for the
assets is the difference between the Assets & Liabilities.
Residual Claims: the owner is entitled to what is left over after the claims of the
creditors have been met. Name of owner is followed by the word “Capital”.
5. Two final totals one on each side of the balance sheet are recorded on the same line
and underlined with a double line.
Accounts Receivable (A/R or /A.R.):
Amounts owing to a business by customers who purchased goods or services on credit.
i.e. (these customers OWE the business money.)
These amounts owed to the business are listed as assets as the business expects to
receive payment.
A DEBTOR is anyone who owes money to the business.
Accounts Payable (A/P or A.P.):
Amounts owing by a business to suppliers for goods/services bought on credit.
The business is in debt to a supplier and must pay out the money owed. Accounts
Payable are listed as liabilities.
A CREDITOR is anyone to whom the business owes money.
Accountants aren't dull and unimaginative:
Old Stereotype: dull, meek, unimaginative, introverted bean counters..
New Findings: bright, enthusiastic, aggressive, competitive, leaders,
Smaller firms: people more socially reserved, shy, and timid.
Larger firms: competitive, aggressive "happy-go-lucky"
Female accountants: self-reliant, realistic, no-nonsense
Accountants no longer in back room buried in books, but a part of management team.