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 ac

liabilities - or what the firm's obligations are; shows also how many of these should be returned in the short-run, and how many the enterprise can employ in the long-run;

The activity in which the organization is involved can have dramatic effects on the classification of an asset. What might not be an asset for one business would be an asset of another business, undertaking a different activity. Apart from these cases, which are to some extent reasonably clear cut, the activity can have dramatic effects on the difficulty or otherwise of drawing up a balance sheet. Consider for example the problems of a football club, trying to account for star players; or of a high technology business, trying to decide whether the cost of the patent on a new product is going to yield any future benefit when the state of the art is changing so rapidly.

Still, there are many users to which the balance sheet does not seem confused and is necessary, although they have conflicting needs:

To finish with the aspects here referred to as "objective", we have summarize in short the practical side of the balance sheet. No matter how often it is drawn, and what of the two popular forms it is presented in, the balance sheet, as known, consists of three major parts:

Another very strong limitation of the balance sheet is the fact that the costs are given in their historical expression. Although, as prevoiusly stated, this has its reasons, still in some cases it blurs the information on the sheet. This is especially true applied to the accounting in high - inflation environment, and is probably one of the reasons for the opinion of the South Asian author - Keron Bhattaraya. But even in normal economics sometimes the assets being stated as a figure which bears little if any relation to the current value (the most obvious example of this in recent years has been the changes in prices and values of land and buildings). This is a serious contradiction and recently there has been a trend showing assets in public accounts at a valuation rather than at a historical cost.

As we all know a fundamental characteristic of every balance sheet is that the total figure for assets always equals the total of liabilities plus owners' equity. As we have already seen, actually the above simple equation, representing the theoritical essense of this document, and a basis of its practical side, is the reason for it to be called balance. Actually, the two sides of the balance sheet are merely two views of the same business property.

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Approximate Word count = 3034
Approximate Pages = 12 (250 words per page double spaced)