Do you even know what a Balance Sheet is? Da Vinci did

I am obliged on behalf of all accountants to reference this “sexy” accounting fact (it may be the only one). The modern balance sheet can be traced back to the 15th Century to a book authored by Franciscan monk Luca Pacioli — noted friend and teacher to Leonardo Da Vinci. (Seriously, an accountant may have influenced the Mona Lisa).

The P&L and the Balance Sheet

The two most dreaded business terms to any start-up and the rest of humanity

At least with the Profit & Loss, one can conceptualize the meaning behind the term:

“A P&L shows if I made a profit or loss and how that result is broken down”

True. It’s not the whole truth, but that’s the subject of another article.

Now the balance sheet doesn’t come so easy

I’m a trained and Chartered (Certified in American) Management Accountant, and even during my training, this was never adequately explained to me.

The Usual Balance Sheet Definitions:

“A company’s balance sheet, also known as a “statement of financial position,” reveals the firm’s assets, liabilities and owners’ equity (net worth)” — Investopedia

“A summary of the financial balances of an individual or organization” — Wikipedia

“The balance sheet presents a company’s financial position at the end of a specified date. Some describe the balance sheet as a “snapshot” of the company’s financial position at a point (a moment or an instant) in time” — Accounting Coach

Beautiful definitions for people who already understand what a balance sheet is.

But for the layman? For the start-up CEO? To a regular human being?

What Does the Balance Sheet Actually Mean?

Forget assets, forget liabilities, forget equity.

The balance sheet is your Inventory in Skyrim, Zelda and Diablo

The balance sheet is the illustration of your financial pros & cons

The balance sheet is the bloodwork result of your business

In short, the balance sheet is your company

Time-Zero: The balance sheet is born

Time-One: The balance sheet develops

Time-One minus Time-Zero: The P&L Emerges.

That’s right, the P&L represents a movement from one balance sheet to another.

The P&L tells the story of how you moved from one balance sheet to the next

The P&L is the track between the start/finish line

The P&L is the interval between music notes

The P&L is the colour spectrum between black and white

(I may have been drinking when writing this section)

The P&L is the Journey, the Balance Sheet is the End Destination

There’s a reason for the saying, “Balance sheet is King”— this is what your business has to show for itself

The balance sheet is a summation of all the historical decisions, actions and fortune (misfortune) that has impacted the business

It’s a standalone statement:

The good things

The bad things

The net situation

To the ancient Egyptians, reaching eternal paradise was dependent Anubis’ weighing of one’s heart against a feather — in accounting terms you’d better hope your net equity was positive.

Now, try taking another look at those definitions — does this help?

Thanks to Luca Pacioli (Father of Accounting)— 500 Years in the making.

That’s longer than some religions.