Final answer:
The method of reporting on a balance sheet—using either the invoice date or when cash is received—depends on whether the accounting system is on accrual or cash basis.
Step-by-step explanation:
The subject of the question concerns how to prepare a balance sheet, which is a crucial accounting report that lists an entity's assets and liabilities. In practice, when including transactions on a balance sheet, the decision to use an invoice date or the actual date of cash receipt reflects an adherence to different accounting principles – accrual basis or cash basis accounting, respectively.
Under the accrual basis of accounting, transactions are recognized when they are earned or incurred, regardless of when the money is actually received or paid. Therefore, you would rely on the invoice date to record the transaction on the balance sheet. Conversely, cash basis accounting recognizes transactions only when cash is received or disbursed. In this case, you would record the transaction when the cash physically enters into the bank account.
A bank's balance sheet operates on similar principles, showing the bank's assets, such as cash in vaults, and liabilities, like customer deposits. The difference between these assets and liabilities is known as the bank's net worth or bank capital. For a bank, properly timing the recognition of assets and liabilities is especially important for regulatory and reporting reasons.