The Balance Sheet

Financial statements are the final product of the accounting process. They provide information on the financial condition of a company. The balance sheet, one type of financial statement, provides a summary of what a company owns and what it owes on one particular day.

Assets represent everything of value that is owned by a business, such as property, equipment, and accounts receivable. On the other hand, liabilities are the debts that a company owes-for example, to suppliers and banks. If liabilities are subtracted from assets (assets-liabilities), the ammount remaining is the owners’ share of a business. This is known as owners’ or stockholders’ equity.

One key to understanding the accounting transactions of a business is to understand the relationship of its assets, liabilities, and owners’ equity. This is often represented by the fundamental accounting equation : assets equal liabilities plus owners’ equity.

Assets = Liabilities + Owners’ Equity

These three factors are expressed in monetary terms and therefore are limited to items that can be given a monetary value. The accounting equation always remains in balance; in other words, one side must equal the other.

The balance sheet expands the accounting equation by providing more information about the assets, liabilities, and owners’ equity of a company at a specific time (for example, on December 31, 1993). It is made up of two parts. The first part lists the company assets, and the second part detais liabilities and owners’ equity. Assets are divided into current and fixed assets. Property, buildings, and equipment make up the fixed assets of a company. The liabilities section of the balance sheet is often divided into current liabilities (such as accounts payable and income taxes payable) and long term liabilities (such as bonds and long-term notes).

The balance sheet provides a financial picture of a company on a particular date, and for this reason it is useful in two important areas. Internally, the balance sheet provides managers with financial information for company decision-making. Externally, it gives potential investor data for evaluating the company financial position.


Laporan keuangan merupakan hasil akhir dari proses akunting. Laporan keuangan memuat data keuangan suatu perusahaan. Neraca, jenis laporan keuangan yang berisi ringkasan tentang kekayaan dan hutang perusahaan pada suatu hari.

Aset adalah semua milik perusahaan yang bernilai, seperti tanah, perabotan & tagihan piutang. Sebaliknya, hutang adalah kewajiban yang harus dibayar – umpama kepada supplier atau bank. Jika hutang dikurangkan pada aset (aset- hutang) sisanya adalah kekayaan pemilik perusahaan. Ini dinamakan kekayaan pemilik perusahaan atau pemegang saham.

Kunci untuk mengerti transaksi akunting bisnis harus mengerti hubungan aset, hutang dan kekayaan pemilik. Ini sering dinyatakan dengan persamaan dasar akunting aset sama dengan hutang ditambah kekayaan pemilik.

Aset = Hutang – Kekayaan Pemilik.

Tiga unsur ini dinyatakan dalam nilai uang dan oleh sebab itu terbatas untuk barang-barang yang tidak dapat dinilai dengan uang. Persamaan akunting selalu tetap sama, dengan kata lain, sisi yang satu harus sama dengan sisi yang lain.

Neraca memperluas persamaan akunting dengan memberikan lebih banyak data tentang aset, hutang dan kekayaan pemilik perusahaan pada saat tertentu (Umpama pada tanggal 31 desember 1993). Neraca terdiri dari dua bagian. Bagian pertama berisi aset perusahaan dan bagian ketua hutang dan kekayaan perusahaan. Aset terdiri dari Aset lancar dan aset tetap. Uang tunai, tagihan hutang, perabotan, dan barang dagang semuanya adalah aset lancar. Tanah, gedung dan peralatan merupakan aset tetap perusahaan. Hutang pada neraca terdiri dari hutang yang harus segera dibayar (Seperti tagihan hutang dan pajak penghasilan) dan hutang jangka panjang (Umpama bond dan hutang jangka panang lainnya).

Neraca berisi gambaran perusahaan pada suatu waktu. Dan oleh karena itu berguna untuk dua sisi yang penting. Kedalam, neraca memberikan data keuangan kepada manajer untuk membuat keputusan perusahaan. Keluar, neraca menyediakan data kepada calon investor untuk mengevaluasi keadaan keuangan perusahaan.


A. Answer the following questions about the balance sheet. Questions with asterisk (*) cannot be answered directly from the text.

1. What is the final product of the accounting process?

The final product of the accounting process is the balance sheet.

2. What is a balance sheet?

A balance sheet is a final product that provides a summary of what a company own’s

and what it owes on one particular day.

3. Does the balance sheet provide financial information for a long period of time or does it provides information for a specific point in time?

It provides information for a specific point in time for example, on Jan 30,1993.

4. What is the difference between assets and liabilities?

Assets represent of value that is owned by a business, liabilities are the debts that is a

company owes.

5.  How is owner’s or stockholders’ equity determined?

Owners’ or stockholders’ equity is determined by subtracting liabilities from assets.

6. How can the relationship between asset, liabilities and owners’ equity be represented?

It can be represented by the fundamental accounting equation : assets equal liabilities

plus owners’ equity.

7. Does the accounting equation lways remain in balance? +why or why not?

Yes, it does. Because one side must equal the other. If not, it must be wrong with the


8. How can the business use a balance sheet? *as a manager, how would you find a

balance sheet useful?

A balance is useful for a business, because it provides a financial picture of a company

on a particular day. It provides manager with financial information for company


B. Complete the balance sheet by writing in the correct terms from the list below.

Assets            Current                 liabilities             Long-term liabilities

Liabilities       Fixed assets         Current assets    Stockholders’ equity

International Manufacturing, Inc.Balance Sheet

December 31, 1993

AssetsCurrent assets

Cash $ 49,400

Account receivable 1,600

Inventories 53,000

Total $ 104,000

Fixed assets

Property $ 15,000

Buildings 50,000

Equipment 10,000

Total $ 75,000

Total assets $ 179,000



Current liabilities

Account payable $ 30,000

Income tax payable 19,000

Total $ 49,000

Long-term liabilities

Bonds $ 20,000

Long-term notes 40,000

Total $ 60,000

Total liabilities $ 109,000

Stockholders’ equity

Common stock $ 47,000

Retained earnings 23,000

Total $ 70,000

Total liabilities and $ 179,000

stockholders’ equity

Vocabulary Exercises

    1. Write down any terms that you did not understand in the reading. Find each term in the reading, look at its context, and try to figure out the meaning. Discuss these terms with your classmstes.
    2. Look at the terms in the left-hand column and find the correct synonyms or definitions in the right-hand column. Copy the corresponding letters in the blanks.

1. g property (line 6)           a. assets equal liabilities plus owners equity

2. d equal (line 12)              b. provide information item by item

3. f condition (line 2)           c. indicate by words or symbols

4. b detail (line 21)              d. have the same value as

5. a accounting aquation (line 12) e. a series of transactions, changes, or functions that bring about a particular result

6. h monetary (line 15)         f. the existing circumstance

7. e process (line 1)              g. anything awned by a person

8. c express (line 15)             h. of or pertaining to money

C. Discuss the following question with a partner. In giving yaour answers, try to use the italicized terms.

1. What is the difference between accounts receivable and accounts payable?

2. Why are accounts receivable and cash considered current assets while property and equipment are considered fixed assets? What do you think the difference is between current and fixed assets?

3. The owners’ equity in a company equals assets minus liabilities. What is meant by owners’ (or stockholders’) equity?

4. If you were a manager, how would you use the balance sheet to evaluate your company’s financial condition?

5. What do you consider your personal assets? Do you have any liabilities? What are they?


1. Accounts receivable is assets and account payable is liabilities.

2. Because they are easy changed into money.

3. Net owning.

4. The manager known were the company’s financial healthy.

5. Mobile.

Text Analysis

Look at the reading to answer these question.

1. What does each of the following refer ro?


1 they financial statement

9 this the owners’ share a business

11 this the relationship of its assets,liabilities, and owners’ equity

15 these three factors assets, liabilities, awners’ equity

2. In line 6, what are property, equipment, and accounts receivable axamples of?


3. In line 7, what do suppliers and banks refer to?

To whom the company has debts

4. In line 5-7, two different phrases are used to incorporate examples in the reading. What are these phreses?

a. Assets

b. Liabilities

5. Another method of clarification by example is the use of mathematical representations. From the reading, copy example that use mathematical symbols.

a. The fundamental accounting equation

b. Assets = liabilities + owners’ equity


Categories of the balance sheet can be classified to show the relationship between them. Fill in the following blanks on the information provided in the reading and to figure 1 (page 79).

Class : Assets Class : Liabilities

Members : Current assets Members : Current liabilities

Fixed assets Long-term liabilities

Class : Current assets Class : Current liabilities

Members : Cash Members : Account payable

Accounts receivable Income tax payable


Class : Fixed assets Class : Long-term liabilities

Members : Property Members : Bonds

Building Long-term notes



Using the information in the reading, answer the following questions. Give reasons to support your answers.

1. Which of the following is not a fixed assets: office equipment, machinery, marketable securities, land, and buildings? Why?

Marketable securities, because its easy to change into money.

2. Are the following liabilities current or long-term: bank loans payable, accounts payable, mortgage bonds payable, taxes payable, and long-term notes payable? List each under the correct heading.


Account payable Bank loans payable

Taxes payable Mortgage bonds payable

Notes payable