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A balance sheet is a financial statement that a company files to provide transparency on the financial condition of the organization. The three main groupings that are illustrated in this form are assets, liabilities, and the amount of equity ownership. Within the document, a balance sheet account is an item or transaction with a value of an individual component under major categories that comprise the statement. For instance, a series of accounts can be found under the assets, liability, and equity shareholder groupings.
There is flexibility allowed in how to include a balance sheet account within the confines of this financial document. A company is not forced to follow some uniform template or even to replicate the way that similar organizations in the same industry disclose these details. The mainstay items in a balance sheet are assets, liabilities, and the amount of equity owned by shareholders. Differences in the means used to obtain assets are the variables that make each balance sheet account unique.
Although reporting companies have some flexibility in the descriptions used for each balance sheet account, there is a standard order that is followed when creating this financial document. Assets are typically at the top of a balance sheet, followed by liabilities and finally shareholder equity. The difference between assets and liabilities should lead to the shareholder equity value. Another way to balance this financial statement is to combine liabilities, or debts, with shareholder equity to generate the value of assets.
Assets are organized by the level of liquidity, or ease at which these items can be turned to cash. A balance sheet account that might be listed under this category is cash. The statement might go on to indicate the amount of cash on hand followed by an account of cash held elsewhere. Other asset accounts could include investments in the financial markets followed by any interest earned on those securities.
Companies include any debts in the liabilities section of a balance sheet. These accounts could include debt obligation payments owed to investors or governments. Employee salaries and other account payable items could also be grouped as individual accounts in this section. In the equity section, which could be referred to as owner's equity or shareholder equity, stock securities, including common and preferred shares, may be listed as account items in addition to certain profits. A balance sheet may number each account item consecutively from top to bottom.
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