Balance Sheet Format and its Importance
In December, accountants are usually busy preparing three important financial statements because it is the end of the accounting period. One of these statements is a balance sheet. A balance sheet is a financial statement or an official document that shows the financial status of a company. This document must be made in the right format, i.e. a balance sheet format.
How does a Balance Sheet Look Like
A balance sheet has three main sections. Those sections are shareholders’ equity, assets, and liabilities. Each of those sections consists of smaller elements. For example, shareholders’ equity consists of retained earnings and capital stocks. Meanwhile, assets have cash, long-term assets, current assets, inventories, and etc. Moreover, liabilities consist of salaries payable, accounts payable, loans, and etc.
Those three sections are arranged in a balance sheet format. They are located under a title or a heading. It states the name of the company, the name of the financial statement, and the accounting period. There are two types of document formats that you can choose.
1. Report format
In this particular balance sheet format, you will see that the document is divided into two sides, right and left. The assets section is written on the left side. Meanwhile, the liabilities section and the shareholders’ equity are written on the right side. The total amount of the left side and the right side must be equal.
2. Account format
In this particular balance sheet format, you will see that the document is divided into two parts, top, and bottom. The assets section is written at the top. The bottom part is for the equity and liabilities. The total amount of the top section and the bottom section must be equal.
A balance sheet can communicate many things to its readers. Here is some of the information that can be gained from this financial statement by different readers.
- This document can tell the shareholders the liquidity position and business accomplishment of a company.
- A balance sheet can tell the financial status of a company to investors and creditors.
- The comparisons of balance sheets from different years allow the readers to know the growth of the company.
From the points above, it can be concluded that a balance sheet is an essential financial statement. Aside from this importance, a balance sheet is also needed to apply for a business loan. A bank usually asks a company to submit this financial statement as part of the requirements.
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