What is a balance sheet?
One of the primary statements of a reporting entity's financial accounts.
Also known as the Statement of financial position.
The balance sheet summarises the assets, liabilities and shareholders’ funds at the balance sheet date.
Shareholders' funds are also known as 'equity'.
Under the 'double entry' accounting convention, assets are Debits (DR) and liabilities and shareholders' funds are Credits (CR).
The standard UK balance sheet presentation for external reporting is Net Assets = Shareholders' Funds.
The Net assets part of the balance sheet is sometimes called the 'top half'.
The Shareholders' funds part being the 'bottom half'.
For example in summary:
Assets 100 DR
- Liabilities (20) CR
= Net assets 80 DR
Shareholders’ funds 80 CR
(Total shareholders' funds being appropriately detailed in turn into share capital and reserves, as well as the individual assets and liabilities being appropriately listed in fuller detail.)
The balance sheet equation in summary using the convention above is 80 = 80.
Alternative presentations of balance sheets
There are many other ways to present this information in other balance sheet formats. Alternative balance sheet conventions maintain the balanced/double-entry principle, but may show for example:
Total Assets = Total Liabilities + Shareholders' Funds; OR
Total Assets = Total Liabilities + Equity
Presented on this alternative (assets = liabilities) basis, using the same summary figures as before:
Total assets 100 DR
Total liabilities 20 CR
+ Equity 80 CR
= Total liabilities & equity 100 CR
The same balance sheet information has now been presented as 100 = 100, using the alternative convention.
The Total liabilities of 20 CR are now presented in the bottom half of the balance sheet (rather than in the top half as before).
Total liabilities & equity of 100 CR means the same thing as Total liabilities & shareholders' funds of 100 CR.
(Equity and Shareholders' funds being alternative names for the same item.)
The choice of presentation and terminology will depend on the purposes for which the balance sheet information is required, together with any rules or conventions applying to the entity's external reporting.
- Balance sheet exposure
- Cashflow statement
- Contingent assets
- Contingent liabilities
- Credit balance
- Current/non-current method
- Debit balance
- Double entry
- Event after the balance sheet date
- Financial reporting
- Financial statements
- Income statement
- Off balance sheet
- Off balance sheet finance
- Post balance sheet event
- Profit and Loss account
- Share capital
- Shareholders’ funds
- Short term
- Statement of financial position