Answer:

The balance sheet is one of a company’s most important financial statements, because it gives investors a snapshot of the company’s financial health at any given moment in time. Essentially, it is a company’s account ledger, containing information about assets the company possesses, liabilities and obligations it needs to address, and owner equity in the company.

Each of the documents relies on data from other statements, so they are usually prepared in a certain order.

Step-by-step explanation:

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Difference Between Report Form and Account Form Balance Sheets

Small Business

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Accounting & Bookkeeping

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Accounting

By

John Palmer

Updated June 20, 2019

The balance sheet is one of a company’s most important financial statements, because it gives investors a snapshot of the company’s financial health at any given moment in time. Essentially, it is a company’s account ledger, containing information about assets the company possesses, liabilities and obligations it needs to address, and owner equity in the company.

A balance sheet can be presented in account form and report form, but first, it is important to have a basic understanding of the types of financial statements to prepare and why they are important.

Statements of Financial Position Forms

There are four different statement of financial position forms that a company’s accountant prepares, and they each cover a very important piece of the company’s financial health. Statements of financial position forms provide a snapshot of the performance, overall financial position and cash flows of a business. These documents are reviewed by investors, lenders, creditors and management to evaluate a company.

Each of the documents relies on data from other statements, so they are usually prepared in a certain order.

Income statement. The income statement is the most important of the financial statements, because it reveals basic truths about the financial performance of a company for a given reporting period. Beginning with sales, it subtracts expenses and arrives at a net profit or loss, and, in the case of publicly reported companies, an earnings-per-share figure for investors.

Statement of retained earnings. If the income statement is a measure of financial health at any given moment, this document — also known as the statement of owner's equity, an equity statement or a statement of shareholders’ equity — offers the information over time. Management and investors want to know if they are making or losing money, so the statement reconciles the beginning and ending retained earnings for the period (for instance, over a year or so) using information such as net income from the other financial statements.

Balance sheet. This report shows the financial position of a business as of the report date, and like the income statement, it is a snapshot of financial performance at a given moment because it can change daily or hourly, depending on circumstances. The information is divided into the general classifications of assets, liabilities and equity. As a rule, the total amount of the company's assets is equal to the total amount of its liabilities plus the owners' equity in the company. This equation must always balance, with the same amount on each side of the sheet.

Unlike the income statement, however, the balance sheet is much more detailed — it lists specific line items of assets and liabilities.

Statement of cash flows. This report reveals the cash inflows and outflows experienced by a company during a reporting period. These cash flows are broken down into three classifications: operating activities, investing activities and financing activities.