What is the balance sheet and how is the filling?

What is the balance sheet and how is the filling?
The balance sheet is part of the two main financial statements in any business or enterprise. They are the balance sheet and income statement. Other are also probably necessary depending upon your situation, such as the cash flow statement.

A balance sheet is a snap shot in time (usually at each month end) that shows assets, liabilities and net worth. Assets are what you own, liabilities are what you owe and the difference is net worth or stock holders equity. If assets are higher than liabilites you have a negative net worth and that is not good.

Assets are divided into short term (cash, stock, etc.) that may be turned into cash within 30 days or less and are called current assets. Long term assets are land, buildings, machinery and such things and are called fixed assets. Fixed assets are depresciated over there usefull life. The monthly depreciation goes to the income statement in the form of an expense.

Liabilites are also short and long term, using the 30 day rule.

The income statement reflexs three items: 1) revenue or sales, 2) expenses or costs of those sales and 3) profit or loss. The sales and expenses are matched under the accrual system of accounting.

An accural system of accountig (versus a cash system) is where you record assets, liabilites, sales and expenses when they are earned and not when they are received. For example, if payroll is weekly and ends on July 27th, then the estimated cost of payroll for July 28th to the 31st is accrued or recorded on the books (balance sheet and income statement) as an increase to expenses (a credit to a liability on the balance sheet) and a debit to an expense account (on the income statement). Next month (Aug.) when we pay that payroll then we reverse the liability with a debit and reduce the cash account with a credit.

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