What Goes on the Balances Sheet and What Goes in the Notes

The balance sheet lists current liability accounts and their balances; the notes provide explanations for the balances, which are sometimes required.

Learning Objective

Explain why a company would use a note to the balance sheet

Key Points

All liabilities are typically placed on the same side of the balance sheet as the owner's equity because both those accounts have credit balances.
Current liabilities and their account balances as of the date on the balance sheet are presented first on the balance sheet, in order by due date. The balances in these accounts are typically due in the current accounting period or within one year.
Current liability information found in the notes to the financial statements provide additional explanation on the account balances and any circumstances affecting them. Accounting principles can sometimes require this type of disclosure.

Terms

LLP
Limited liability partnership.
pension
A regularly paid gratuity paid regularly as benefit due to a person in consideration of past services; notably to one retired from service, on account of retirement age, disability, or similar cause; especially, a regular stipend paid by a government to retired public officers, disabled soldiers; sometimes passed on to the heirs, or even specifically for them, as to the families of soldiers killed in service.
LLC
Limited liability company.

Full Text

The Balance Sheet

In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership, a corporation, or other business organization, such as an LLC or an LLP. Assets, liabilities, and the equity of stockholders are listed as of a specific date, such as the end of a fiscal year or accounting period. Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a company's calendar year. Balance sheets are presented with assets in one section, and liabilities and equity in the other section, so that the two sections "balance. " The fundamental accounting equation is: assets = liabilities + equity ([).

The Balance Sheet

If an error is found on a previous year's financial statement, a correction must be made and the financials reissued.

Current Liabilities on the Balance Sheet

All liabilities are typically placed on the same side of the report page as the owner's equity because both those accounts have credit balances (asset accounts, on the other hand, have debit balances). Current liabilities and their account balances as of the date on the balance sheet are presented first, in order by due date. The balances in these accounts are typically due in the current accounting period or within one year. Current liabilities can represent costs incurred for employee salaries and wages, production and build up of inventory, and acquisition of equipment which are needed and used up during normal business operations.

Information in the Notes

Current liability information found in the notes to the financial statements provide additional explanation on the liability balances and any circumstances affecting them. Accounting principles can sometimes require the disclosure of specific information for the benefit of the financial statement user. For example, companies that pay pension plan benefits require additional footnote disclosure that provide the user with additional details on pension costs and the assets used to fund it.

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