Balance sheet
A balance sheet is an overview of the posessions, liabilities and equity of a company at a certain moment in time.
- The right side of the balance sheet comprizes of the passiva - the resources of the organisation, both
- The left side of the balance sheet comprizes of the activa - where those resources are dedicated to
Of the four basic financial statements, the balance sheet is the only one that describes something at a specific point in time.
It doesn't balance without equity
To me, there is something weird about putting a balance together: You have to add an entity called equity that is based on a formula: The [[Equity equation
| equity equation]], to make the whole thing balance (meaning: left and right the same amount).
Partitioning?
When you partition a year into twelve months and you make end balances for those months and for the year as a whole, do these 12 monthly balances add up to the yearly balance?
I guess so, but let's check:
Example
Booking facts: Every month, 1 invoice of € 1.000 (ex VAT) is send. It's paied immediately and VAT is settled the same month.
Balance at the beginning of the year: € 0 - € 0
Balance at the end of the first month:
- Debit: Bank account: € 1.000
- Credit: Equity = assets - liabilities = € 1.000.
Balance at the end of the second month:
- Debit: Bank account: € 2.000
- Credit: Equity = assets - liabilities = € 2.000.
Etc.
Balance at the end of the 12th month:
- Debit: Bank account: € 12.000
- Credit: Equity = assets - liabilities = € 12.000.
Conclusions
It doesn't! The balance at the end of the year, is just that: An inventory of the state at that specific moment. Early balance sheets have no meaning in this context.
I guess I confused a point-in-time entity like balance sheet with an interval entity like income statements: There you can add partitions to arrive at the sum covering the partitions