Welcome to Balance Sheet Re-imagined!

The Balance Sheet is a "mathematical tool" used to "verify" the recordation and categorization of transactions in a bookkeeping process.

It has two halves that calculate the same value two different ways.

The purpose for the report is to perform cross-checks between 1) self-recorded data on one half and 2) third party data on the other half.

When these two halves are equal it provides baseline assurance that the self-recorded bookkeeping work, which is more granular and detailed than the third party data, was done in a without egregious errors or omissions.

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Public Education for the Balance Sheet has been mired in misleading and patently false statements for decades.

The main stream educational curriculum, those that presented it, and the financial publishing world has claimed the Balance Sheet was a "snapshot" of information for a Business at a given point in time.

PROBLEM: That is what HALF of the report provides, and that misdirection totally masks the proper purpose and relevance of the report. It also makes it very difficult to cognitively process the nature of the report given half of it requires both a start date and an end date to prepare the report making it not remotely about a "snapshot" at a single point in time.

They were calling a Chocolate-Vanilla Twist a Chocolate Cone with no consideration for the Vanilla and asking the masses to simply ignore a multi-colored reality that was far greater than just Chocolate. It was just that bad.

Unfortunately, for all exposed to this Educational Conspiracy that goes way beyond Balance Sheet misinformation, an incredibly frustrating and mentally numbing experience has been had for many decades if not centuries now, and it's impossible to believe it was "an accident".

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This website details a new Balance Sheet report format and modified vocabulary that transparently presents the purpose of the Balance Sheet and the information contained on it.

The Balance Sheet is a "Comparative Net Worth Statement".

Our new "Comparative Net Worth Statement" does the exact same job as the old Balance Sheet, it just does it transparently and with more granular information which makes it impossible to claim it's about a snapshot in time.

Half of the report focuses on incremental changes as recorded by the Bookkeeper over a period of time, and the other half is based on a snapshot in time with data accumulated from third parties.

The report as a whole "does something" neither of the two halves can do separately.

Anyone who learns this new template can understand old Balance Sheets easily while also identifying the unnecessary obfuscation that was included there with clarity.


Welcome to Balance Sheet Reimagined

A Simple and Refreshing Thought with Staggering Ramifications

Sections Below include:

  1. Meet the New Balance Sheet! -- A Comparative Net Worth Statement for Data Integrity

  2. How does it work?

  3. The Report Header

  4. Half #1 - Company Net Worth (Incremental)

  5. Half #2 - Company Net Worth (Absolute)


1) Meet the NEW Balance Sheet! -- A "Comparative Net Worth Statement" for Data Integrity

The Comparative Net Worth Statement (aka the New Balance Sheet) contains a Report Header with one major modification from its predecessor, and it contains two halves, similar to the old Balance Sheets.

Think of the new Balance Sheet as being broken into THREE parts. There is a Report Header and Two Halves.

1) The Report Header now has a Start Date and an End Date. The start date has always been required to prepare a Balance Sheet. It was just hidden in sub-reports prior and not shown on the Balance Sheet. The End Date here is what was considered the Report Date prior.

2) One of the halves (the old Equity half) has been modified for transparency. Income and Expenses are now reported separate instead of as "Net Income" and the Equity items are all reported individually instead of in an aggregated fashion.

3) The other half (the old Assets-Liabilities half) has remained unchanged.

NOTE: In the new format, the presentation of the two halves has been inverted for cognitive clarity. For Transparency, we have also added commentary next to each line item to show the source of every calculation and date relevance for each line item.

1) The Report Header
[now with start date AND end date]


2) Half #1: The Company Net Worth (Incremental)
[ the old Equity Section]


3) Half #2: Company Net Worth (Absolute)
[the old Assets-Liabilities Section]



An Explanation for the Changes...

The goal of the balance sheet is to cross check transaction recordation and categorization for a given period of time, YET, the definitions provided by curriculum stated it was a report detailing a snapshot in time. That is the cognitive pretzel that turned everyone inside out. It was like trying to walk on a sheet of ice.

By adding the start date to the top of the report and by shifting the section that was dependent on a start date to the top, and by showing income and expenses separate not as net income and by showing all the other equity lines separate not aggregated, it becomes easy to realize this is simply an incremental report for transactions. It is an "extended income statement" which shows not only inflows and outflows for income and expenses, but it shows all inflows and outflows for equity too, and that makes it all inclusive for cash flow in and out of a company.

If you are accounting for all inflows and outflows for a company for a given period of time, it makes sense the starting value, which can be verified with third party information, plus all categorized transactions, should equal an ending balance that can be verified with third party information.

This report, in this order now flows from the top to the bottom logically and everything is transparent. Someone had taken an otherwise simple report, inverted the parts, buried relevant facts and created a false tag line for the report for some "odd reason" that can only be related to mental control of the masses or some other nefarious intention. No one truly interested in teaching, education or an accounting literate body politic would have ever "taught" bookkeeping and the Balance Sheet that other way nor used it for reporting that way regularly due to a mountain of unnecessary confusion.

2) How does it work?

This new Balance Sheet works exactly like the old one.

Only the vocabulary has changed and the resolution on information presented. The Start Date has been added to the header and more granular information is now included in the incremental section (old Equity Section) that was previously on sub-reports. These small changes dramatically increase transparency and the order of presentation was inverted in the new report for top down, linear clarity. The functionality is unchanged.

Here's how it works....

There are TWO Sections:

The "Incremental" Section and the "Absolute" Section.

1) The "Incremental" Section takes a starting Net Worth for a given date in time that predates the the transactions you want to cross check. It then adds and subtracts aggregated subtotals for all transactions that you want to crosscheck and it presents a new Net Worth for the end date of the report.

2) The "Absolute" Section is a look at your bank statements and other third party reports for the statement end date. This "half" of the report is the part that is about a "snapshot in time" and it is generally thought of as "Gospel".

If your beginning balance and incremental changes in in the incremental section are recorded properly, the resulting net Worth for the "incremental" section will result in the same value as the absolute sections which are Gospel as presented by your Banking Institutions. At this point the transaction categorization work is presumed to have been done properly.

An Example for those newer to Balance Sheets who need simpler understanding...

Take a starting Net Worth for any date prior to the report date. Add all money that flowed in and subtract all money that flowed out between the start date and an end date and you will be left with a New Net Worth.

$100 at the beginning of the month + $50 in allowance - $30 in phone service fees = $120 at the end of the month..

If that Ending Net Worth Calculation using a starting net worth and incremental changes equals your bank statement balance for the end of the month ($120), your bookkeeping records and categorization from the start date to the end date is thought to be "in balance".

This seems STUPID doesn't it? How could this help me out? The two will always be equal?

YES, it might but NO it's not.

Imagine you had a space cadet moment and accidentally recorded your phone service fee as $20. instead of $30. Without crosschecking you would think you had $10 more than you had.

More importantly when dozens or hundreds of transactions get involved and some are more complex, errors and mistakes can happen and this is the easiest way to realize those.

In addition to crosschecking yourself, the software that you use to record all your bookkeeping "could burp" and create errors too, albeit extremely rare. This helps find those in the rare event they happen either.

This is a very valuable tool for cross checking your data to make sure no one in your business or bookkeeping process is overtly stealing money from you. It's also a way for you to crosscheck yourself and a way for others who need to review your data to feel moderately confident you aren't cheating on your own financial reporting.

3) The Report Header

The Old Balance Sheet header would have only had the "Report End Date" referenced as the "Report Date". This new one has a "Report Start Date" and a "Report End Date", both of which are required to prepare a Balance Sheet.

This is not a functional change to the report. This simply brings the start date that was used previously as part of the income statement sub-report to the surface of the Balance Sheet for clarity.

This Digital Report Header also summarizes the data from each half of the Balance Sheet with a color coded Trial Balance Box.

That box turns GREEN when the Trial Balance is ZERO and it turns RED when the Balance is NOT ZERO, indicative of an error. The term "trial balance" is derived from the idea we are "trying to get them to equal each other".

This Digital Report Header also has an "ON/OFF" Switch.

This spreadsheet based Balance Sheet is simply a "view" of spreadsheet data entered in the Journals. As a result, each Journal update updates this report in real time. If there are spreadsheet performance issues related to processing time for updates, you may choose to turn off the report to try to speed up the regular transaction processing. Then turn it on when you care to review the data and results.

The Source of the Summary Values in the Header come from the two halves...

Each half of the report (the incremental half and the absolute half) uses addition and subtraction to calculate a value of "net worth" for that half of the report. NOTE: We are only showing you the top line or two of the second half of the report for now. A full image is just below this one that shows it all.

In this case, the incremental half (1) and the absolute half (2) are equal and thus the difference between them is ZERO, so the books are said to be "in balance" for the report end date of 12/30/2016 or as of 12/30/2016.

The Report Header with the Start AND End Date is the most dramatic change in this new format.

4) Half #1 - Company Net Worth (Incremental)

The Starting Net Worth on old Balance Sheets comes from the Company Net Worth calculated at the end of a prior report period. In our software, you can store prior Comparative Net Worth Statement data for reference just like it's done with old Balance Sheets, but it is not required.

We calculate Starting Net worth for the report start date using the "assets - liabilities" calculation for any new start date selected. If you have a prior value stored you can compare for system accuracy if you'd like.

This method only works because we have (1) real time monitoring of the Statement Reconciliation running in parallel with this Balance Sheet/Comparative Net Worth crosschecking system AND (2) because this data is all just a "view" of the raw Journal data. No transactions are being re-recorded or transcribed in a way errors can be introduced into the data programmatically.

This half (the old Equity half) looks a little different than in the old format. We report income subtotals and expense subtotals separate, instead of as "net income". We also report on all equity accounts individually instead of as an aggregate of equity account changes. Having the text to the right that defines what each line is calculating is also a huge help.

The "incremental section" is most prone to errors. This is where all the recordation and categorization of the bookkeeper is put to the test.

5) Half #2 - Company Net Worth (Absolute)

This half of the Balance Sheet is created for a specific date only, not a range of dates with a start and end date. This is the part that is a "snapshot" in time for any (end) date selected. Describing a Balance Sheet this way only describes half the content of the report and ignores it's true functionality.

Think of this half of the Balance Sheet as being "Gospel". If there is an error, 90% of the time it will be in the incremental section not this section. If here is an error, Confirm it's not in this section and then start seeking the error in the incremental section values. The "incremental section" is where most errors will typically hide.

If I asked a Small Business Person to prepare the absolute portion of their Balance Sheet, they would need:

  1. Their Checking Statements (errors do NOT typically exist here. This is what you are measuring up to)

  2. Their Credit Card Statements (errors do NOT typically exist here. This is what you are measuring up to)

  3. A report of the inventory they had on hand for that date (errors could exist here!)

  4. A report with the current balance Due to JD (errors could exist here!)

  5. A report with the current balance of "Expenses Paid Via" account which can be thought of analogously as a credit card for the business where you, the business owner are the issuer of that credit ! (errors do NOT typically exist here as you have self reported these)

With this outline it is easy to see, there might only be TWO places for Errors to exist in this part of the Report and that is in the 1) that inventory reporting and the 2) Due to JD reporting.

BUT we are not going to realize any errors easily now. We just create this part of the report. When we prepare the other half and start making comparisons, any errors in this part will start to become apparent.

A Quick Dive into Assets

Assets are things you have of value:

  1. Cash stored in your piggy bank

  2. Cash stored in a banking institution

  3. Items you have that have value like a bicycle and computer

  4. Items you have purchased or created, with the sole intention to sell are also "assets"

If you died today, your heirs could sell them to buy your casket and head stone! Thus they are Assets.

Above, under assets, we have listed two checking accounts and an inventory account, BUT we only seem to have money in one of the checking accounts....

We don't seem to have any inventory and we don't seem to have anything else of major value if our business shut down today.

A small "service business" like wellness counselling might have this look on the Assets side of things. Naturally, you would assume they have a cell phone and a computer and some other assets worth something!?

Yes. They surely do, but let's keep it simple for now. There is a way to track "minor assets" in a way they don't show up on this report and that they don't need to.

This report is really for CASH and BIG ASSETS like maybe a car or an expensive piece of equipment or anything with a value of over $5000 for example. The threshold each will separate BIG ASSETS from SMALL ASSETS varies and is a personal choice. Keep your thoughts simple now for this learning process.

A Quick Dive into Liabilities

Above, under Liabilities, we have listed two credit card accounts, a "due to" account, and an odd one we have called "ExpPaidVia".

The credit card accounts are easy to understand. You have spent money using a credit card, and that is the Balance on the Card for a given date in time. The Credit Cards are easy to understand.

What are those other accounts?!?

The "Due to JD" account is easy too. Sometimes a business owner needs to lend his business money to pay the bills. Maybe he is working on a big $30,000 job but he won't get paid for 60 days and his rent of $2500 is due this month. If he has no money in his business account to pay it he can "loan his company money" to pay it. It's a very simple concept. Maybe instead of borrowing money from himself he borrowed it from his parents or wife? No problem, you just make them a "Due To" account too. This is how loans made to a company are tracked.

The "ExpPaidVia" is interesting and not "common" right now as a default liability account but they will be soon enough. Imagine you are a business owner, and you are at a flea market. You see some items you want to buy for your office, but you left your company credit card at home. You could pay that vendor with your personal credit card or cash for the items, but there will be no record of that purchase on accounts that are tracked by default in your business bookkeeping software. So what will you do? You must keep track of every expenditure or you will have to pay tax on profits you should not have to pay tax on .

One option is to write a check from the company to yourself. You could write up an "expense report" detailing the expenses you reimbursing yourself for, just like a vendor would write up a receipt for your purchases and then you could write a check from your company to you for the expenses. That is one very good option, but it requires a little paperwork to do properly.

The other option is to simply records the purchase in your "Expenses Paid Via" account. By doing this you side step the formal expense reporting process and the expenses are documented in your bookkeeping system so you, as the business owner get credit for them and you don't have to pay income tax on money you spent on business expenses.

BUT WAIT A MINUTE?!!? Isn't this JUST LIKE A LENDNIG MONEY TO THE COMPANY and the "Due To Account"? YES it is identical. The only reason this is "suggested" or "included' as a separate account is because it "feels better" to separate these two forms of company debt a little bit.

Money provided and tracked under the "Due To" account is typically much smaller in value. It's money that often times business owners might not reimburse themselves for. This is simply a way to account for those so taxes are not paid on them.

The Expenses Paid Via Account then can also be thought of as a "Credit Card" used by the Business, but YOU, the business owner are the banker!!

6) Summary

If you are a CPA, a Bookkeeper or a Bookkeeping Wizard who understood Balance Sheets you now realize there was a far easier way to teach this information. This is how it should have always been taught. We have a little over 100 years of making up to do? Please step in and lend a hand.