Chapter 13

Balance Sheet

What Is a Balance Sheet?

A balance sheet (also known as a statement of financial position), presents information about an entity's assets, liabilities, and shareholders’ equity, where the compiled result must match this formula:

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Assets are items of economic value that is expected to yield a benefit to the owning entity. Examples of assets are cash, investments, accounts receivable, prepaid items, land, buildings, and office equipment.

Liabilities are legally binding obligations payable to a third party. Examples of liabilities are accounts payable, accrued expenses, wages payable, and taxes.

Shareholders’ equity is the difference between the total of all recorded assets and liabilities on an entity's balance sheet. This difference is the funds contributed by the entity's owners, plus or minus accumulated retained earnings.

The balance sheet reports the aggregate effect of transactions as of a specific date. The balance sheet is used to assess an entity's liquidity and ability to pay its debts.

The balance sheet shows an entity's financial position as of a specific point in time. Thus, at the end of a month, the header of a balance sheet might read:

ABC Company Balance Sheet as of August 31, 20X1

Which Line Items Do I Include in a Balance Sheet?

There is no specific requirement for the line items to be included in the balance sheet. The following line ...

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