The role of the Balance Sheet is to provide the Preparer of the Books and anyone who reviews the books a reasonable sense of confidence the Books are free from egregious errors like missing transactions, uncategorized transactions, or very errantly categorized transactions.

The only way a Balance Sheet can work properly is if third party Account Statements are included as part of the Review process, but that doesn't play out the way you think. The way it plays out is by using the transactions that third parties are using as much as possible for your own books, while figuring out how to track for cashflow matters, missing transactions or other types of errors or fraud.

The Balance Sheet contains two different calculation methods for Company Net Worth.

The First calculation uses a prior Starting Net Worth and it adds and subtracts a Summary of changes over a period of time, ending with the end date of the report, also known as the report date.

The Second Calculation Method is calculated with account balances (running balances) for Asset and Liability Accounts for the End Date as reported on third party statements.

When the two methods come to the same value, a cross check has been achieved and the Books are considered to be "in Balance". At that time, an assumption is made the recordation and categorization process has been completed without egregious errors.

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Putting this all another way, you are comparing the bookkeepers recorded transactions for a period of time to known starting and ending Net Worth Values. If the bookkeeper did her job properly, the incremental changes recorded by the bookkeeper will properly account for the total change in Net Worth from a starting point to ending point in time.

Simplified Example:

1. On January 1 Bonnie has $100 in her Checking Account. That was reported on her December 31 Statement and it is evident from the running balance in her bookkeeping software.

2. On January 5, Bonnie earns $30 in allowance. She records that in her Journal and she modifies the running Balance to $130.

3. On January 10, Bonnie spends $10 on herbs. She records that in her Journal. She modifies her Journal running Balance to $110.

4. On February 1, Bonnie looks at her January 31 statement. It says her Balance is $110.

Bonnie's Journal matches with the Bank's Statement, so her books are said to be "in balance".

What mistakes could have transpired here?

1. Bonnie could have forgotten to record one or both of the transactions in her Journal

2. Bonnie could have recorded the values incorrectly.

3. Bonnie could have recorded the values as negative instead of positive or visa versa.

4. Bonnie's Bank could have made a math or reporting error (very unlikely but it could happen)

The Balance Sheet and this system in which it calculates Net Worth Two Different ways helps ensure Accuracy and Data Integrity. It is not perfect. The game can be manipulated by someone who knows what they are doing, but it is a good cross check for basic errors.