It is also called as 'Statement of Financial Position'. It depicts the financial position of a company on a particular date. It gives the information of how the company is being financed and how that money is invested in various productive resources. The financial position of the enterprise, captured in the Balance Sheet of the company reveals the relationship between the economic resources of the enterprise and its claims (obligations). Economic resources in accounting terminology are called the Assets and the claims are 'Liabilities' pertaining to creditor's claims and 'owner equity' pertaining to owners' claims. Hence,
Assets = Liabilities + Owner's equity.
Assets
Assets are the "probable future economic benefits obtained or controlled by a particular entity as a result of past transactions and events" as stated in Statement of Financial Accounting Concepts No.6, FASB. Assets simply means what the enterprise owns.
Liabilities
Liabilities are "probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events". Liabilities simply means amounts owed by an enterprise.
Equity
Equity or owner's equity is the "residual interest in the assets of an entity that remains after deducting its liabilities." Simply said, equity or owner's equity is the difference between the enterprise's assets and its liabilities.
For better understanding of the meaning of balance sheet, some of the definitions given by prominent writers are given below:
"The Balance sheet is a statement at a given date showing on one side the trader's property and possessions and on the other side his liabilities".
- Palmer
"A Balance sheet is an itemized list of the assets, liabilities and proprietorship of the business of an individual at a certain date".
- Freeman
"A list of balances in the asset and liability accounts. This list depicts the position of assets and liabilities of a specific business at a specific point of time".
- American Institute of CPA
Thus, balance sheet lists out the assets and liabilities and capital of the business at a certain date.
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