Balance sheet shows the financial
position or condition of an organization at a
particular point in time. In fact, it is
sometimes referred to as a position statement or
statement of condition.
shows the economic resources (properties,
possessions) of an organization, referred to as
assets, and the claims that creditors and owners
have against the assets. Economic obligations of
an organization (amount owed to creditors) are
called liabilities, and owners, claims are
referred to as owner's equity, or capital.
common arrangement of the balance sheet is to
list assets on the left side and liabilities and
owner's equity on the right. This balance
arrangement, with assets and equities
(liabilities) side by side, is sometimes
referred to as the account form of balance
sheet, because it resembles the traditional
T-form of an account.
alternative arrangement, sometimes called the report form of balance sheet, centers
the asset section under the heading, with the
equity claims shown below the asset. The report
form frequently fits on a standard sheet of
paper better than the account form.
Assets are normally reported on balance sheet in
the order of their relative nearness to cash.
For example, the account receivable (sundry
debtors) account usually follows the cash
account because the accounts receivable are
likely to turn into cash very soon. On the other
hand, assets like land and buildings are
normally listed towards the end, because they
are expected to be around a long time. So, the
balance sheet that divides its accounts into
subgroups within the major sections of the
statement is called a classified balance
sheet. Generally assets are divided into two
groups, current and non-current assets are cash
and other assets that are relatively close to
being cash. In practice, an asset is classified
as current if it can meet any of the following
conditions within the year:
If it can
reasonably be expected to turn into cash.
If it can
easily be converted to cash by the managers
of the entity.
If it can take
the place of cash (as with prepaid
When assets are divided into current and
non-current groups, It is common practice to
classify liabilities in a similar way. Current
liabilities are liabilities that cash reasonably
be expected to be paid within one year.
Naturally, the liabilities that are not expected
to be paid within one year are transferred to as
Format/Example of Report Form
The format of a balance sheet in report form is
Name of the
December 31, 2005
Inventories (finished goods, work in
insurance, taxes, and miscellaneous