TABLE OF CONTENTS A balance sheet (B/S) is a written representation of assets and liabilities of an individual, a partnership, a quoted company, or other entity, such as a city. The term B/S is not crisp, its best definition being expressed as a list of balances in assets, liabilities, or net worth accounts. Notice that this definition, by the American Institute of Certified Public Accountants (AICPA), is accurate, but it is not so meaningful in management terms.
A more meaningful statement about the balance sheet is that it shows sources from which funds, presently used to operate the entity, have been obtained; for instance, owner(s) equity and other liabilities. It is also meaningful to state that the B/S documents the types of property, and property rights, on which funds are currently used. These are the assets (see section 2).
Just as important is to bring into perspective that a balance sheet may be made in an honest manner, or be subject to creative accounting by 'cooking the books' (see Chapter 11). When it is honestly made, and the representation of its details is correct, the balance sheet portrays the financial condition of the entity to which it belongs.
The assets and liabilities in a balance sheet, and profit and loss (P&L) income statement show, at year's end, the results of the exercise.
By contrast, as Chapter 9 explained, the budget is a financial plan, which must be carefully established a priori, documented, and approved to...
