Balancing the Business
Many view the balance sheet as the most important report because it provides a view of the net worth of the company. Critical financial decisions concerning bank loans or credit ratings are often based entirely on the information found in the balance sheet. The following equations sum up the essence of the balance sheet:
assets = liabilities + owner’s equity
owner’s equity (net worth) = assets - liabilities
Basically, developing a balance sheet for a business is not much different from developing a statement of personal net worth for a bank to apply for a personal loan.
The chart of accounts is usually set up in the order that the accounts appear on the balance sheet followed by how they appear on the P&L statement. ...