9 Aug /17

Balance Sheet

Balance Sheet - Word of the day - EVS Translations
Balance Sheet – Word of the day – EVS Translations

A balance sheet is a summary of the financial condition of an individual or an organisation at a specific point in time. As a standard, it has two sides, where on the left it lists all assets (debits), while on the right – all liabilities and ownership equity (credits). And those two sides must balance out, hence the name.

The very word balance entered the English language circa 13th century, from the Old French balance ‘balance, scales for weighing,’ deriving from the Medieval Latin bilancia ‘having two pans’  (bi ‘two’ and libra ‘scale’). Where the meaning of a “sum necessary to balance the two sides of an account” was first recorded in use in the 1620s.

And while the official term balance sheet appeared in English print in only 1838, when The United States magazine and democratic review wrote: “He becomes familiar..with trial balances, balance sheets,” the oldest surviving double entry balance sheets were made by fourteenth century Florentine Banks; and most notably by the Medici Bank, where each bank branch was closing its books on 24th March every year, sending a copy of its balance sheet to the main bank office in Florence. And furthermore, the balance sheets were listing separately the balance of each single customer’s account.

It was the appearance of joint-stock companies in the 17th century, to see the demand of investors for columnar financial standing reports and in 1653, Richard Dafforne publishing his bookkeeping manual The Merchants mirror: Or, directions for the perfect ordering and Keeping of his accounts, illustrated a six column financial statement – where the first two columns listed the balance of the totals, the middle two a balance of the balances, and the last two columns represented a balance sheet of the remaining assets and equities.

Books on specialised accounting soon began to appear, and during the next century the British book keeping slowly started to adapt to corporate needs. In 1844, the Parliament passed The Company Act requiring stockholders to receive audited balance sheets and the adopted format followed the universally used throughout Europe one, yet in 1858 a model balance sheet was released where the British form, contrary to the universal balance sheet form, placed the assets on the right and the equities on the left, with the permanent capital listed at the top.

The current regulations on the presentation of the form and content of a balance sheet differ from country to country, type of organisation, and purpose of usage. And as they are important tools for investors and creditors to gain insight into an organisation’s financial standing and its operations, multinational corporations have to be able to understand the policies and languages of the host countries of their key stakeholders. EVS Translations could be their ideal partner for international success, providing professional financial language services.