What is an accounting balance sheet?


Quick Answer

An accounting balance sheet is a financial statement that reveals the financial position of a company at the end of a specified period, usually the last day of an accounting period. A standard accounting balance sheet has three parts: assets, liabilities and ownership capital or equity.

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Full Answer

The most common use of an accounting balance sheet is to determine the liquidity of a business. Liquidity refers to the ability of a business to pay its debts in a timely manner. The main types of assets are usually listed first and in the order of liquidity. The difference between assets and liabilities is known as net worth, or the net assets or equity. According to the accounting equation, the total capital must be equal to total assets minus total liabilities.

In a side-by-side balance sheet format, assets are listed in the left column, while liabilities and ownership equity are listed in the right column. The totals of the two columns at the bottom of the information should match when the accounts are balanced.

When using the report format, the assets are listed first, followed by liabilities and equity. The report may sometimes show the total liabilities subtracted from total assets, within the bottom line of the data listing capital. This format is easier to use when information is being presented for multiple periods.

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