This essay The Balance Sheet has a total of 3055 words and 14 pages.
The Balance Sheet
Although the balance sheet was first implemented just a couple of centuries ago, it has quckly developed and sophisticated to become nowadays a widely used and powerful tool in the hands of professional users, well known and popular even among the mass public.
In spite of its prominence, or may be because of it, the balance sheet can not be easily and fully described in a few words, but still, if we leave aside its various functions and forms and any other subjective factors, we can state that the balance sheet is a summary of an enterprises\' assets, liabilities and equity at a specific moment of time. To simplify this description even further we could say that the balance sheet shows an entity\'s possessions, obligations and others\' debts to it.
The objective point of view however is often too restrictive, and the most simple things many times prove to be rather complex...
Among the thousand more complex definitions appended to the balance sheet one of my favorites is the definition given by .... according to which the balance sheet is a statement meant to communicate information about the financial position of an enterprise at a particular point in time, summarizing the information contained in accounting records in a clear and intelligible form, giving information about the financial state of an enterprise and indicating the relative liquidity of the assets, showing the liabilities of the enterprise (i.e. what the enterprise owes and when these amounts will fall due), able to assist the user in evaluating the financial position of the enterprise, being however only part of the data needed by users. Or to summarize this long description with which I completely agree, I could say that although the balance sheet is one of the most outstanding instruments in the hands of financial analysts, managers, investors and other users, its importance should not be over emphasized, it has to be viewed along with many other documents, and it is far from being the perfect and the super financial document.
In order to get a more clear, complete and fair picture of the balance sheet, apart from reviewing the definitions given by the experts in this field, we would need to consider as many sides and issues of the subject as possible. Being objective we should have a look at the etymology of the word balance, the history of this document, its theoretical essence and the basic concepts of accounting implied in it, its forms in the accounting practise. In our attempt however not to become over-objective or scholastic, we should also review the aims and purposes of the balance sheet and the extent to which they are fulfilled, the users of this financial statement and their contradictory needs, the negative aspects and restrictions of the balance sheet, and finally the trends of its further development. In short, we have to go further into the matter...
The history of the so called financial statements, and the balance sheet among them, can be traced back to Renaissance Italy, where along with the double - entry book - keeping they first evoked to respond to the growing more and more complex needs of the accounting connected with the economic development of the society at that period (expansion of trade activities, development of banking, etc.) and with the transition from the owner - manager model towards limited companies or the breakdown of ownership from control. Obviously these historical events called for the development of new methods and new documents, reflecting the changes.
Naturally the word balance itself has also an Italian origin (bilan, bilanz) though it is formed up of two latin words: bi - double and lanx - scales. Even from here it becomes obvious that the balance sheet is a sheet or summary of two different aspects of one and the same thing: an entity\'s financial position.
Further to this aspect, we can take a look at the definition of the balance sheet given by John Arnold, Tony Hope and Alan Southworth: The balance sheet is the most inituitive and easily understood document of accounting. Most of us at some stage in our lives will be required to compute a listing of our possessions. Such a listing of possessions is a major element in the construction of a balance sheet.. Far
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