A balance sheet is an extended form of the accounting equation. An accounting equation is:
Assets = Liabilities + Equity
Assets are the resources controlled by a business, equity is the obligation of the company to its owners and liabilities are the obligations of parties other than owners.
A balance sheet is named so because it lists all resources owned by the company and shows that it is equal to the sum of all liabilities and the equity balance.
A balance sheet has two formats: account form and report form.
An account form balance sheet is just like a T-account listing assets on the debit side and equity and liabilities on the right hand side. A report form balance sheet lists assets followed by liabilities and equity in vertical format.
The following example shows a simple balance sheet based on the post-closing trial balance of XYZ COMPANY.
