Monday, October 27, 2014

Why a balance sheet must be balance?

Why a balance sheet must be balance?
The question is evidently being asked by a non-native English speaker. I am guessing that they want to know: "Why must a balance sheet be in balance?"The short answer is that a balance sheet that is out of balance indicates that there is an error somewhere in the recording of entries, addition and subtraction, or simply missing entries, or deliberate distortions.The whole point of a double entry bookkeeping system, is to record entries in two locations that always total the same amount. If your left hand side doesn't match your right hand side, (debit and credit), then you are "out of balance" and the hunt for your error or errors begins. It is a poor safety net, as it only catches a few types of errors, but it at least catches those.

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