road sign beware of teeter totter

Why is it called a balance sheet?

Remember playing on the teeter-totter when you were a kid? I don’t know about you, but I always ended up stuck in the air, held up by my big brother who would not let me down until I cried, “Charlie Brown, Charlie Brown, Let me down!”

He’d respond with, “What will you give me?” and I’d have to promise something like my dessert or part of my precious allowance. Sometimes one of my foster sisters would take pity on me and climb up the splintered wooden board to my end and provide enough weight for me to get down.

As odd as it may sound, a balance sheet is just like that teeter-totter.

On one side you have your assets. That’s my brother. And on the other side are your liabilities. That would be me, stuck up in the air. The balance sheet always has to balance, so we need that sibling to come along and even things up. That is your equity.

Assets (what you own) = Liabilities (what you owe) + Equity (what you’re worth)

Balance sheets used to be presented in a landscape format, with assets on the left side of the page and liability and equity on the right. Just like a teeter totter. It was so much easier to see the balance back then.

But now that accounting is all computerized, the balance sheet shows up portrait-style with assets on top and liabilities and equity at the bottom. They still have to balance, but they aren’t nearly as much fun.

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