2015-08-21
422
A balance sheet (or statement of financial position), is a summary of a firm's assets, liabilities, and owners' equity accounts at a particular time, showing the various dollar amounts that enter into the accounting equation. The balance sheet must demonstrate that the accounting equation does indeed balance. That is, it must show that the firm’s assets are equal to its liabilities plus its owners' equity. The balance sheet is prepared at the end of the accounting period, which usually covers one year. Most firms also have balance sheets prepared semiannually, quarterly, or monthly.
Figure 3.1 shows the balance sheet for Northeast Art Supply, a small corporation that sells picture frames, paints, canvases, and other artists' supplies to retailers in New England. Note that assets are reported at the top of the statement, followed by liabilities and owners' equity. This is the standard format for these statements. Let us work through the accounts in Figure 3.1, from top to bottom.
Assets
On a balance sheet assets are listed in order, from the most liquid to the least liquid. The liquidity of an asset is the ease with which it can be converted into cash.
