The balance sheet
The balance sheet as a snapshot of what the company owns and owes: assets and liabilities, headings, gross and net value, the equality of both sides and where profit sits.
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Balance sheet: what is it?
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The document that gives a snapshot, at a given date, of what the company owns and owes, in two columns of equal total.
Unlike the income statement, which covers a period, the balance sheet holds for one instant, most often 31 December.
Where does the balance sheet place trade receivables?
- In current assets
- In fixed assets, because the receivable lasts several months
- In debts, because the customer owes money
- In equity, because the sale enriched the company
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In current assets
The customer owes money to the company, which is an asset; it will turn into cash within the year, hence current assets. Debts are what the company owes.
At any moment, total … equal total …, because everything the company owns has been financed.
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At any moment, total assets equal total liabilities and equity, because everything the company owns has been financed.
This equality is not a goal but a consequence of double entry. If it does not hold, an entry is wrong.
Assets: what is it?
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Everything the company owns or can claim: durable goods, stock, receivables, money in the bank.
Assets are ordered by increasing liquidity: from what stays in the company a long time (machines) to cash on hand.