First Previous - Page 1 of 1 - Next Last

Balance Sheet Question

  • 8 posts
  • # 112584

Hi there

I am probably missing something obvious, but I have a question about the balance sheet.

If Assets=Liabilities+Capital, how does that work with the payables ledger which is a liability.

In a month period I could spend any amount of money and be invoiced for it, thus putting it in the payables ledger- but not all of it will be stock or become an asset. 

How then does the balance sheet balance! Many thanks in advance for your help!

  • 75 posts
  • # 112585


If you make a credit transaction, it will increase your creditors (Cr.) and also increase your purchases/expenses (Dr.). Some of these items will appear on the P&L account (such as purchases and overheads) which is part of the double entry system and other items will appear on the Balance Sheet which is not part of the double entry system. You will see the creditors as a Cr. balance on the balance sheet whereas the reversing entry will be incorporated within the P&L value which will reduce/increase the capital. As an example:

You pay for a months rent on credit. You now have:

Rent £300 Dr. (P&L)

Creditors £300 Cr. (BS)

The balance of the P&L incorporating all income and expenditure will be presented on the Balance Sheet and appear as Retained Earnings (or to make it simpler it will increase or decrease the Capital held). In the example above, presume no other transactions hit the P&L account, this would create a £300 loss. So in effect your balance sheet would increase £300 Cr. for Creditors and decrease £300 Cr. for Capital. They would in effect balance each other out within Cr. side of the Balance Sheet. I hope this makes sense...Dean

  • 8 posts
  • # 112586

That does makes sence, thank you Dean for the answer. I think what I'm missing is if a balance sheet is produced monthly- would that reflect acurate reatined earnings, as I thought that was a year end procedure? I guess the software I use (if using relevant one) would pull these 'working' retained earning figures on a monthly base based on what had been entered in the relevant accounts? 

Many thanks for your help




  • 75 posts
  • # 112587

Hello Lisa

Yes you are right, my software on a monthly basis shows 'Current Earnings' in the Balance Sheet and also a 'Retained Earnings'. At year end when I roll the year forward the 'Current Earnings' moves into the 'Retained Earnings'.

  • 8 posts
  • # 112599

Thats great, thanks for your help!

First Previous - Page 1 of 1 - Next Last