What is a balance sheet and how many types are there?
Balance sheet definition:
The balance sheet is one of the most important financial statements that shows the assets, liabilities and capital of a business unit on a specific date. In other words, since the balance sheet shows the financial position of the company at a given time, it can also be introduced as a picture of the position of the business unit.
Types of Balance Sheet:
The balance sheet can be presented in two forms:
A. Form of account:
As you know, the shape of the account corresponds to the letter T in English. In this method, the headings related to assets are displayed on the right side of the balance sheet and liabilities and equity on the left side of the balance sheet. Equal to the sum of the items on the left side of the balance sheet. This type of balance sheet presentation emphasizes the accounting equation. In the financial statements prepared in Iran, the accounting form is mostly used to present the balance sheet.
b) Report Form:
In this method, the left side of the balance sheet, the liabilities and shareholders’ rights, is listed under the asset headings.
Balance sheet items:
Every balance sheet, regardless of its reporting or accounting form, must include the following information:
1- Title:
The balance sheet title consists of three separate lines as follows:
• The full name of the economic unit: which is written in the first line of the title.
• Name of the report or financial statement: The name of this report is the balance sheet and is mentioned in the second line of the title.
•Report Date: In the third line of the title, the date of the last day this report displays. This should refer to a specific date and not a specific time period. For example, this section should be written as one of the following dates:
On 29/12/1393 or on 29/12/1393
2- Unit of measurement:
The unit of measurement used to record financial events should be shown on the prepared balance sheet. This unit is currently the rial in Iran and in other countries, the unit of measurement is different depending on the currency of that country.
3- Accounts section:
This section of the balance sheet shows each of the accounts related to the asset, liability and equity groups.
If the balance sheet is prepared in the form of an account, the assets are shown on the right side, the liabilities on the left side, and the equity rights below them. If the report is prepared, assets are shown first, then liabilities are shown under assets, and finally equity is shown.
Note: In the assets section, current assets are listed first and then long-term assets, and in the liabilities section, current liabilities are listed first and then long-term liabilities.
(For information on current and long-term concepts, see the article Classification of Assets and Liabilities and Their Definition).
4- Total accounts:
After entering the information in the balance sheet, the final total of each column should be written. The following should be observed when writing the final sum:
In a balance sheet, the sum of both sides of the balance sheet must always be equal.
In the balance sheet in the form of a report, the total liabilities and shareholders’ rights should be equal to the total assets.
3- Two parallel lines are drawn under the final sum
Mehdi Koh Soltani (Financial Services; Accounting; Tax Financial Advisor):
Audit Accounting Clinic Link
https://t.me/joinchat/BnzBsTuioTshiXBwf9bBPQ