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Balance Sheet
or Statement of Financial Position

Introduction

A balance sheet shows the financial position or condition of a company as of a certain date. It is also called Statement of Financial Position.

In a Nutshell

Financial position relates to how much resources are owned and controlled by the company (assets), and the claims against them (liabilities and capital).

A balance sheet presents a company's assets, liabilities and capital.

This lesson shows what a balance sheet looks like and provides some points you need to know about this report.

Balance Sheet Example

Moving on from our previous illustrations, here is a sample balance sheet for Carter Printing Services, a service type sole proprietorship business.

All amounts are assumed and simplified for illustration purposes.

Carter Printing Services
Statement of Financial Position
As of December 31, 2020
       
ASSETS
Current Assets:
  Cash $ 21,000  
  Accounts Receivable 16,000  
  Prepaid Expenses 4,500 $  41,500
Non-current Assets:
  Fixed Assets   145,000
Total Assets $ 186,500
 
LIABILITIES AND OWNER'S EQUITY
Current Liabilities:
  Accounts Payable $ 8,400  
  Rent Payable 8,000 $  16,400
Non-current Liability:
  Loans Payable   23,000
Carter, Capital 147,100
Total Liabilities and Owner's Equity $ 186,500

Explanation and Pointers

  1. A Balance Sheet shows the financial position or condition of the company; thus, it is also called "Statement of Financial Position".
  2. A typical balance sheet starts with a heading which consists of three lines. The first line presents the name of the company; the second describes the title of the report; and the third states the date of the report.
  3. Notice that the third line is worded "As of..." Unlike the other components of the financial statements which cover a span of time ("For the period ended.."), the balance sheet presents information as of a certain date (at a specific point in time). In the above example, the contents of the balance sheet pertain to the financial condition of the company on December 31, 2020.
  4. A balance sheet summarizes the assets, liabilities, and capital of a company. Assets refer to properties owned and controlled by the company. Liabilities are obligations to creditors, lenders, etc. And capital represents the portion left for the owners of the business after all liabilities are paid. For detailed lessons about assets, liabilities and capital, check out the Elements of Accounting.
  5. Assets and liabilities are classified as either current or non-current. Current assets are properties that will be converted into cash within 12 months or within the operating cycle of the business. Current liabilities are due within 12 months or within the operating cycle. Non-current assets and non-current liabilities are those that do not meet the above qualifications.
  6. "Total assets" and "total liabilities and capital" should always be equal.
  7. The capital amount, $147,100 for Carter, Capital, was actually taken from the Statement of Owner's Equity.
  8. The balance sheet may be presented in two forms: account form and report form. In account form, assets are presented on the left side while liabilities and capital are presented on the right. In report form, assets are presented first and then followed by liabilities and capital. The example above is presented using the report form.
  9. Good accounting form suggests that a single line is drawn every time an amount is computed. It signifies that a mathematical operation has been completed. The "total assets" and "total liabilities and capital" amounts are double-ruled.
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