The balance sheet theory is a balance sheet view that explains the nature, content and tasks of a balance sheet. There are mainly the following balance sheet theories for correct balancing:
static balance theory
• The static balance sheet theory (Schär, Nicklisch), in which the task of the balance sheet is for a specific point in time, the Balance sheet dateto determine the status of assets and debts. This is done by taking an inventory of the assets and debts existing on this reference date. The company's net worth is the difference between its gross assets and debts.
Dynamic balance theory
• The dynamic balance sheet theory (Schmalenbach), in which the P&L account is in the foreground while the balance sheet is only an aid. However, since an annual balance has to be drawn up, the entire service life must be broken down into sub-periods. Instead of a total invoice, the periodic income statement is created. This view does not want to interpret any stocks in the balance sheet. Rather, it is about the dynamics of business operations. It is a statement of total income where every expense leads to a payout and every income to a deposit. The result for the period is the difference between income and expenditure.
organic balance theory
• The organic balance sheet theory (F. Schmidt), which owes its origin to the inflation of 1920-1924 and which focuses on both the balance sheet and the income statement. The starting point is the consideration of fluctuations in value. The real winnings are to be separated from the fictitious winnings.
The balance sheet theories are not very helpful for business practice, because the balance sheet is usually not based on scientific views, but exclusively on commercial and tax law regulations.