Balance Sheet Equation

There are three main sections of a Balance Sheet: Assets, Liabilities, and Capital just like the accounting equation. The balance sheet is derived from our accounting equation and is a formal representation of our equation.

Items are listed in the Balance Sheet just as in the accounting equation:

Assets = Liabilities + Capital

Assets are normally listed on the left hand side.

Capital is entered on the right hand side.

Liabilities are entered on the left hand side.

Preparation of the Balance Sheet

The balance sheet heading contains the name of the company, the title of the statement, and the date of the statement.

Entries in the balance sheet are made from transfers from the trial balance. A debit balance in the trial balance must be transferred to the debit side in the balance sheet; similarly a credit balance in the trial balance must appear only on the credit side of the Balance Sheet.

There are two basic formats for balance sheet presentation:

-The Horizontal Form

In this form the major categories are presented side by side.

-The Vertical Form

In this form the major categories are stacked on top of each other.

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