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The accounting balance sheet is one of the major financial statements used by accountants and business owners. (The other major financial statements are the income statement, statement of cash flows, and statement of stockholders’ equity) The balance sheet is also referred to as the statement of financial position.
A Balance Sheet is a summary of the financial balances of a sole proprietorship, a business partnership, a corporation or other business organization, such as an Sdn Bhd or a PLC. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first and typically in order of liquidity. Assets are followed by the liabilities. According to the accounting equation, net worth must equal assets minus liabilities.
The balance sheet presents a company’s financial position at the end of a specified date. Some describe the balance sheet as a “snapshot” of the company’s financial position at a point (a moment or an instant) in time. For example, the amounts reported on a balance sheet dated December 31, 2011 reflect that instant when all the transactions through December 31 have been recorded.
Because the balance sheet informs the reader of a company’s financial position as of one moment in time, it allows someone—like a creditor—to see what a company owns as well as what it owes to other parties as of the date indicated in the heading. This is valuable information to the banker who wants to determine whether or not a company qualifies for additional credit or loans. Others who would be interested in the balance sheet include current investors, potential investors, company management, suppliers, some customers, competitors, government agencies, and labor unions.
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