What is an Account Form Balance Sheet?
Definition: The account form balance sheet is a financial statement format where the assets are reported on the left side and the liabilities and equity are reported on the right side. The account format is kind of a visual representation of the accounting equation.
The assets are listed on the left alone. The liabilities and owner’s equity are added together and listed on the right. Both the left and right sides are totaled at the bottom of the report and must always equal each other. Just like the accounting equation (assets = liabilities + owner’s equity).
What Does Account Form Balance Sheet Mean?
The account format is not the only acceptable way to present a balance sheet, however. The report format vertically aligns the asset, liability, and equity accounts with the descriptions on the left and the account totals on the right.
Although both presentation formats are acceptable for GAAP purposes, companies and accountants usually prefer the report form balance sheet because it’s easier to read especially when multiple comparative years are presents. The vertical arrangement of the report form can easily report both years side by side.
This doesn’t mean the account form isn’t used though. Many financial statement users prefer this presentation because it separates the assets more clearly.
Example
The account form of a balance sheet is more commonly used because it better illustrates the standard accounting equation. To complete a balance sheet in account form, you begin by listing the statement name, company name and date. The statement is then divided into halves. On the left-hand side, list all assets of the company, including a total on the bottom. The right-hand side is used to first list the liabilities and then the equities. A total of these two components is placed at the bottom. The totals from both columns should be equal. This method illustrates that assets are equal to the total of all liabilities and equities.
Both types of balance sheets break down each of the three components into smaller categories. Assets are separated into current and long-term assets. Current assets are items owned that are easily changed to cash in one year or less and include cash, accounts receivable and supplies. Long-term assets, also called fixed assets, are assets of great value that are harder to turn to cash. Included in this category are machinery, equipment and land. Liabilities are separated into current and long-term liabilities. Current liabilities are amounts a business will pay off in less than one year, while long-term liabilities are amounts a company will not pay off in this time frame.
Account Form and Report Form Balance Sheets
A company’s balance sheet can be presented in one of two ways, account form and report form, depending on the preference of those who will review the document.
The account form balance sheet is presented in a horizontal format, with information in two columns beside each other. The left column of the account form balance sheet lists assets, while the right column lists liabilities and equity. Naturally, the last line in each column lists the total value of all assets and liabilities and equity, respectively. The account form balance sheet can be easier to use when information is being presented for multiple periods, and it allows the reader to verify that the ledger is in balance at a glance.
The report form balance sheet is presented in a vertical orientation, and is essentially one column that spans the entire width of a page. Starting with assets, the report form balance sheet provides a total value at the end of the assets section, followed by liabilities and equity, with the final line of the report form balance sheet providing the total combined value of liabilities and equity.