The balance sheet always balances because its right-hand side (liabilities plus equity) tells you how the company has been financed while the left (asset) side tells you how the funds have been invested.

Question

Quizplus · Accepted Answer

The balance sheet follows the accounting equation, which always balances: Assets = Liabilities + Equity. The right-hand side represents the sources of funds (liabilities and equity), and the left-hand side represents how those funds have been invested (assets). Therefore, it always balances, and if it doesn't, there is an error in the accounting.

The Balance Sheet Always Balances Because Its Right-Hand Side (Liabilities