Читать книгу Financial Accounting For Dummies - Maire Loughran - Страница 38

The balance sheet shows the health of a business from the day the business started operations to the specific date of the balance sheet report. Therefore, it reflects the business’s financial position. Most accounting textbooks use the clichéd expression that the balance sheet is a “snapshot” of the company’s financial position at a point in time. This expression means that when you look at the balance sheet as of December 31, 2021, you know the company’s financial position as of that date.

Accounting is based upon a double-entry system: For every action, there must be an equal reaction. In accounting lingo, these actions and reactions are called debits and credits (see Chapter 5). The net effect of these actions and reactions is zero, which results in the balancing of the books.

The proof of this balancing act is shown in the balance sheet when the three balance sheet components perfectly interact with each other. This interaction is called the fundamental accounting equation and takes place when

Assets = Liabilities + Equity

The fundamental accounting equation is also called just the accounting equation or the balance sheet equation.

Not sure what assets, liabilities, and equity are? No worries — you find out about each later in this section. But first, I explain the classification of the balance sheet. And nope, all you James Bond fans, it doesn’t have anything to do with having top-secret security clearance.