Category: Accounts Payable

What is balance sheet

While engaging in business, accounting for the business worthy is a timely undertaking that must be done. To do the accounting and to accurately determine the true worth of the business helps the business forge forward. Because of this, several key documents are needed. There are four major documents that need to be looked at and reconciled.

These are journals which must be posted to ledgers. The records on ledgers must be recorded in a trial balance.

The records in the trial balance must also be reconciled and balanced in a balance sheet. A balance sheet is recorded at the end of a certain financial period. It, therefore, shows the net worth as per that date. A balance sheet is, therefore, a record, a document or simply a statement that shows the net worth of an individual, business or an organization. Different from all other financial documents, a balance sheet shows all the financial information of the business in terms of cash, assets, loans, debts, and liabilities. It is simply a financial position of an organization. A balance sheet is recorded on two sides and this way, it is able to show the assets and the liabilities. On top of showing the assets, the balance sheet further shows how they were financed whether through personal equity or debt. The assets, on the left side, are recorded in the order of liquidity.

On the right-hand side, the liabilities are recorded. Liabilities are what the business owns other businesses and/or people. For every amount injected into the business, a corresponding liability in its usage is recorded. Assets in accounting refer to an economic resource. Anything that the organization uses to produce anything of economic value is an asset. It is, therefore, the total value that the organization claims to own. They can be tangible or intangible; current or fixed. These are simply the things that are recorded on the left-hand side of the balance sheet.

On the other side of the balance sheet, there are liabilities. These are all the things that the organization own anybody else. They are financial sacrifices made for the future of the organization. All the bank borrowings, duties, and responsibilities of the organization fall here. At the bottom of the balance sheet, calculations are done and a balance attained. The left-hand side and the right hand are supposed to balance. This is because all the money that has been pumped into the business must be accounted for in the expenditure column. Money invested whether borrowed or owners equity must be spent and recorded accordingly.

A balance sheet is a very important document for any organization. The major function of this statement is to show the financial situation of the organization involved. The stability or insolvency of the organization or an individual is determined in this document, not in

 

the stock. The second major function of the statement is to provide valuable information to be relied on by the management in making any major decision. Thirdly, the past and the present can be clearly analyzed and the future predicted.

In this regard, a balance is a very serious statement that each and every individual, business or organization should have. after each accounting period, the net worthy should be listed and the progress evaluated.