Of the four basicfinancial statements, the balance sheet is the onlystatement which applies to a single point in time.A standard company balance sheet has three parts: assets, liabilities and ownershipequity. The main categories of assets are usually listed first, and typically in order of liquidity.
Assets are followed by the liabilities. The difference between the assets andthe liabilities is known as equity or thenet assetsor thenet worthor capital of thecompany and according to theaccounting equation, net worth must equal assets minusliabilities.
Another way to look at the same equation is that assets equals liabilities plus owner'sequity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balancesheets are usually presented with assets in one section and liabilities and net worth in theother section with the two sections "balancing."Records of the values of eachaccountor line in the balance sheet are usually maintainedusing a system of accounting known as thedouble-entry bookkeeping system.A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businessesare not paid immediately; they build up inventories of goods and they acquire buildingsand equipment. In other words: businesses haveassetsand so they can not, even if theywant to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not
withdraw all their original capital and profits at the end of each period. In other words businesses also haveliabilities.
It was the Flemish mathematicianSimon Stevinwho persuaded merchants to make it arule to summarize accounts at the end of every year in a chapter entitled
Coopmansbouckhouding op de Italiaensche wyse
(Dutch: "Commercial Book-keeping inthe Italian Way") of his
(Dutch: "Mathematical memoirs",Leiden,1605-08). Although the balance sheet he required every enterprise to prepareevery year was based on entries of the ledger, it was prepared separately from the major books of account. The oldest semi-public balance sheet recorded was that of theEastIndia Companydated 30th April1671, which was submitted to the company'sGeneralMeetingon in 30th August1671. The publication and audit of the balance sheet was stilla rarity in England until the passing of theBank Charter Act 1844.