COURSE 2 - The Balance Sheet The balance sheet (also called statement of financial position) reports the financial position of the business at a point in time. It does so by listing the categories and amounts of assets, liabilities and equity on a specific date, in a format that proves the fundamental accounting equation. ASSETS = EQUITY + LIABILITIES or ASSETS – LIABILITIES = EQUITY Formats of presentation Regardless of the format for the presentation of the balance sheet, comparative information should always be presented; depending on national or regional requirements, the current year is compared with the previous year or with the last two years. In Europe, assets are disclosed in their increasing liquidity order and liabilities in their decreasing maturity order, while in the USA the opposite rule functions. The notes should include details concerning the specific accounting policies used for the line-items presented in the balance sheet and sub-classifications to provide details of the their movement. This balance sheet format makes a distinction between current and non-current assets and liabilities. Basically, current assets consist of cash and other assets that the enterprise will use in the normal course of its operating cycle. Similarly, current liabilities are those that the enterprise expects to settle within twelve months of the balance sheet date or in the normal course of its operating cycle, if longer. The stocks of a china manufacturer and the stocks of a wine producer are both current assets, even though the stocks of the latter sometimes require more than twelve months to be ready for sale. All other assets and liabilities are classified as non-current. A different balance sheet format is used in Romania by big companies that apply the Harmonized Accounting Regulations. This format emphasises the investor’s interest in the enterprise and is
