“Offsetting” means having for an example a receivable balance
and then decreasing it with a liability to the same party. In
net effect it means you’re having fewer receivables and
liabilities on the balance sheet. Obviously the parties need to
be the same to offset the balances and mind you, it works the
same with liabilities being offset with receivables and expenses
with income and so on. Mind you however, that offsetting of
assets and liabilities and of income and expense is permitted
when expressly required or permitted by an accounting standard.
Otherwise offsetting is prohibited because it detracts from
giving users a full and proper understanding of the
transactions, other events and conditions that have occurred. If
you think about it, offsetting balances makes your balance sheet
“smaller” as in you have fewer assets and liabilities, but also
if used on the income statement, you’re not setting a clear
overview of your results in full. Normally, if you use
offsetting, you’re expected to disclose this m