What’s a balance sheet?

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A balance sheet is a simple summary of an entity’s assets and liabilities, providing a snapshot of its financial situation. It is useful for individuals and businesses, and can be easily created using basic ledger books or free electronic documents.

As one of the most basic accounting documents, the balance sheet is simply a quick and easy-to-read summary of the financial situation of a person, business, non-profit organization, or a government department or agency. The purpose of this document is to provide a snapshot of all of the entity’s current assets and liabilities, with the goal of understanding the entity’s net worth.

Sometimes called a statement of condition, the structure of a balance sheet is typically very simple. The most basic version tends to group assets under specific headings on the left side of the document. Assets are identified by name in one column, with a second column immediately following it containing the value of the asset. There is often a group subtotal, then an asset grand total at the bottom of the column. The structure of liabilities follows the same basic pattern. Liabilities are grouped on the right side of the balance sheet, in accordance with standard accounting practices. A value is assigned to each individual liability, then a group subtotal is calculated. The grand total of current liabilities is recorded at the bottom of the sheet.

Balance sheets are one of the most useful forms of accounting documents, and can be used in everything from individual household budgets to multi-level corporations. People who are sometimes confused by the accounting process can usually read the sheet without any problem. This straightforward approach to financial recording makes it possible for anyone, from a teenager who wants to keep up with her earnings and part-time expenses to high-powered investors, to easily understand her current financial status.

Learning how to create this type of financial summary is not difficult to do. Any basic ledger book will describe the process in just a few steps. There are a number of free electronic balance sheet documents on the Internet that are ready to download. Finally, it’s easy to create a spreadsheet using the spreadsheet software included in the word processing packages that are part of the standard programs on any new computer.

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