Statement of Financial Position (Balance Sheet)

The Statement of Financial Position, also called the Balance Sheet, is a report of the current standings of asset, liability, and equity accounts. In order to balance, the total of all asset accounts must equal the total of all liability and equity accounts.
  • Asset accounts usually have a debit balance; they're increased by debits and decreased by credits.
  • Liability and equity accounts normally have a credit balance; they're increased by credits and decreased by debits.

Balance sheet accounts always have a balance, which is rarely zero. When a new asset or liability is created, it starts with a beginning balance. Transactions either add or subtract from the beginning balance to create an ending balance. This becomes the beginning balance for the next month.

Usually, the Balance Sheet has three columns: the first for all regular asset and liability accounts, the second for all subtotal accounts, and the third contains the total assets and total liabilities/equity accounts.

Accounting Equations and Terms

Retained Earnings (on Balance Sheet)= Total Income - Expenses
Assets= Liabilities + Equity