The form of the balance sheet in which assets, liabilities, and owner’s equity are presented in a downward sequence is called the report form. True or false
The correct answer and explanation is:
True.
The form of the balance sheet in which assets, liabilities, and owner’s equity are presented in a downward sequence is called the report form. This layout is commonly used in financial accounting, where the balance sheet is organized in a vertical format. In this form, the assets are listed first, followed by liabilities, and then owner’s equity at the bottom of the statement.
The report form provides a clear and straightforward presentation of a company’s financial position, making it easier for stakeholders, including investors, creditors, and management, to quickly understand the organization’s resources and obligations. The structure highlights the relationship between assets and the claims against those assets (liabilities and equity). In this format, assets are listed in order of liquidity, starting with current assets such as cash and accounts receivable, and followed by non-current assets such as property, plant, and equipment. Liabilities are similarly categorized into current liabilities (due within one year) and non-current liabilities (due after one year).
The final section of the balance sheet contains the owner’s equity, which represents the residual interest in the assets of the entity after deducting liabilities. This part includes common equity components such as capital stock, retained earnings, and other equity reserves.
The report form contrasts with the account form, where assets are listed on the left side of the balance sheet and liabilities and equity are listed on the right. The choice of format depends on the company’s preference or the accounting standards followed. However, the report form remains the more widely used presentation, particularly in financial reports and analysis.