Balance sheet

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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

See also

Sources