HELP! Why does a balance sheet always balance? - HotUKDeals
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HELP! Why does a balance sheet always balance?

razta Avatar
8y, 5m agoPosted 8 years, 5 months ago
Im doing some course work for my business course. Ive leanrt how to put a balance sheet together with figures provided however Ive no idea why it has to balance?

What if the sales increase? Then the balance sheet will be unbalanced, wont it?

Ive searched google and cant find an answer. I dont want any one to answer the question for me I just want some one to explain why they always balance, why cant they be unbalaced?

Thanks in advance,
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razta Avatar
8y, 5m agoPosted 8 years, 5 months ago
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#1
How can someone explain without answering the question?
#2
Thats what I was thinking, lol maybe some one can point me in the right direction.
1 Like #3
if they dont balance you made a mistake
It can’t do anything but balance. It’s just a picture of the same pot of money from two different angles. Where the money came from and how it is being used in the business.

Why do we need a Balance Sheet?

For a start, the Profit & Loss Account only shows part of the picture. The P&L may show an excellent profit, but, at the same time, has the company burdened itself with debt? Will the company be able to service that debt or is it becoming over-borrowed? How solvent is the business? How liquid are its assets? You need the Balance Sheet to see what’s really going on. Bank managers and other lenders like to see a strong balance sheet, which suggests the business is a good risk.
#4
when you next at the library look for an AAT foundation study text it will put all, this stuff in very basic terms
#5
If you had a shop, then if you had a 100% increase in sales, how would you as an owner know how much takings there should be after expenses?
banned 1 Like #6
becuase they are meant to balance, thats why their called balance sheets if they dont balance it is because an error has been made, not because the sheet is wrong and i doubt very much my post makes sense but it did to me when typing it
#7
Because then you would have to call it an 'unbalanced sheet' and there is no such thing. It would just be a page of random numbers!!
1 Like #8
Surely it's simple.

One figure is everything you put into the business. One figure is everything the business owns, owes, etc.

The two should balance because everything you put into the business in money should still be in the business as cash, assets, debtors, current liabilities, etc... otherwise something must have "gone missing" somewhere along the line...
#9
DIVA1977;2414086
if they dont balance you made a mistake
It can’t do anything but balance. It’s just a picture of the same pot of money from two different angles. Where the money came from and how it is being used in the business.

Why do we need a Balance Sheet?

For a start, the Profit & Loss Account only shows part of the picture. The P&L may show an excellent profit, but, at the same time, has the company burdened itself with debt? Will the company be able to service that debt or is it becoming over-borrowed? How solvent is the business? How liquid are its assets? You need the Balance Sheet to see what’s really going on. Bank managers


Thanks Diva, that cleared it up for me. I wish I would have asked these questions during the lesson. Rep given.
#10
sales dont go on the b/s they go in the profit and loss
#11
yvw i was 3 rd accounts student would of qualified last year but after 10 years of miscarriages i finally went full term and gave birth to my beautiful baby boy on jan 1st. Seriously get an AAT foundaiton book. All college libraries will have them, if they offer AAT courses
They big white and purple text books A4 in size and really easy to understand
#12
Its a bit difficult to explain without using a excel spreasheet or "mark 2" pen and paper.

In short its all about what money has been "put into" in the business and where it is now.
The money "put in" must always be somewhere and therefore the two sides must balance.

For sales and other profits etc.. The PnL reflects it. After the finacial year any profit or loss is then input into the balance sheet and has to be 'balanced' out by being used or paid for.
#13
DIVA1977;2414123
yvw i was 3 rd accounts student would of qualified last year but after 10 years of miscarriages i finally went full term and gave birth to my beautiful baby boy on jan 1st. Seriously get an AAT foundaiton book. All college libraries will have them, if they offer AAT courses
They big white and purple text books A4 in size and really easy to understand


I will definatly have a look for that book. Im currently doing my first assignment of Unit2 in a Higher Education Foundation Course in Business. Got a distinction in Unit1!
#14
razta
I will definatly have a look for that book. Im currently doing my first assignment of Unit2 in a Higher Education Foundation Course in Business. Got a distinction in Unit1!
awesome...........i was often helping business studets with acccounts on lunch and they helped me understand some business terminology its surprising how intwined the 2 subjects are
130234484301 there is a fleabay number to show how the book might look although looking at tesco this years ones seems to be nearly all white
#15
i got a balance sheet which i done for my homework and it works. i can send it you so you can have a look how to do it.

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