Balance Sheet

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Balance Sheet

The record may be a statement prepared for showing the financial position of the business summarising its assets and liabilities at a given date. The assets reflect debit balances and liabilities (including capital) reflect credit balances. It is prepared at the top of the accounting period after the trading and profit and loss account are prepared. It is called a record because it’s a press release of balances of ledger accounts that haven’t been transferred to trading and profit and loss account and are to be carried forward to a subsequent year with the assistance of a gap entry made within the journal at the start of the subsequent year.

Preparing Balance Sheet

All the account of assets, liabilities and capital are shown in the balance sheet. Accounts of capital and liabilities are shown on the left-hand side, known as Liabilities. Assets and other debit balances are shown on the right-hand side, known as Assets.

The horizontal format in which the balance sheet is prepared is shown in the figure

Balance Sheet of ________________ as at March’2018

Liabilities Amount Rs. Assets Amount Rs.
Capital

( Add Profit ______)

————– Fixed Assets ————–
Long Term Borrowings ————– Cash-in-hand/Bank ————–
Short Term Borrowings ————– Goodwill ————–
Sundry Creditors ————– Sundry Debtors ————–
Bills Payable ————– Land & Buildings ————–
Bank Overdraft ————– Closing Stock ————–
xxxxxxx xxxxxxx
Relevant Items in the Balance Sheet

Items that are generally included in a balance sheet are explained below :

  1. Current Assets:- Current assets are those which are either in the form of cash or can be converted into cash within a year. Examples of such assets are cash in hand/bank, bills receivable, stock of raw materials, semi-finished goods and finished goods, sundry debtors, short term investments, prepaid expenses, etc. 
  2. Current Liabilities:- Current liabilities are those liabilities that are expected to be paid within a year and which are usually to be paid out of current assets. Examples of such liabilities are bank overdraft, bills payable, sundry creditors, short-term loans, outstanding expenses, etc.
  3. Fixed Assets:- Fixed assets are those assets, which are held on a long-term basis in the business. Such assets are not acquired for the purpose of resale, e.g. land, building, plant and machinery, furniture and fixtures, etc. Some times the term ‘Fixed Block’ or ‘Block Capital’ is also used for them.
  4. Intangible Assets:- These are such assets that cannot be seen or touched. Goodwill, Patents, Trademarks are some of the examples of intangible assets.
  5. Investments:- Investments represent the funds invested in government securities, shares of a company, etc. They are shown at cost price. If on the date of preparation of the balance sheet, the market price of investments is lower than the cost price, a footnote to that effect may be appended to the balance sheet.
  6. Long-term Liabilities:- All liabilities other than the current liabilities are known as long-term liabilities. Such liabilities are usually payable after one year of the date of the balance sheet. The important items of long term liabilities are long-term loans from the bank and other financial institutions.
  7. Capital:- It is the excess of assets over liabilities due to outsiders. It represents the amount originally contributed by the proprietor/ partners as increased by profits and interest on capital and decreased by losses drawings and interest in drawings.
  8. Drawing:- Amount withdrawn by the proprietor is termed as drawings and has the effect of reducing the balance on his capital account. Therefore, the drawings account is closed by transferring its balance to his capital account. However, it is shown by way of deduction from the capital in the balance sheet.
Marshalling and Grouping of Assets and Liabilities

A major concern of accounting is about preparing and presenting the financial statement. The information so provided should be decision-useful for the users. Therefore, it becomes necessary that the items appearing in the balance sheet should be properly grouped and presented in a particular order.

     In a balance sheet, the assets and liabilities are arranged either in the order of liquidity or permanence. The arrangement of assets and liabilities in a particular order is known as Marshalling.

     In the case of permanence, the most permanent asset or liability is put on the top of the balance sheet and thereafter the assets are arranged in their reducing level of permanence.

Balance Sheet of__________ as on March 31’2018 ( In order to Permanence)

Liabilities Amount Rs. Assets Amount Rs.
Capital           12000

Add: Profit      4500

16500 Fixed Assets 15000
10% Long Term Borrowing Loan 5000 Sundry Debtors 15500
Sundry Creditors 15000 Bank/Cash 6000
36500 36500

     In the case of liquidity, the order is reversed. The information presented in this manner would enable the user to have a good idea about the life of the various accounts. The assets account of the relatively permanent nature would continue in the business for a long time whereas the less permanent or more liquid accounts will change their forms in the near future and are likely to become cash or cash equivalent.

Balance Sheet of__________ as on March 31’2018 ( In order to liquidity)

Liabilities Amount Rs. Assets Amount Rs.
Sundry Creditors 15000 Bank/Cash 6000
10% Long Term Borrowing Loan 5000 Sundry Debtors 15500
Capital           12000

Add: Profit       4500

16500 Fixed Assets 15000
  36500   36500

The items appearing in the balance sheet can also be properly grouped. The term grouping means putting together items of similar nature under a common heading. For example, the balance of accounts of cash, bank, debtors, etc. can be grouped and shown under the heading of ‘current assets’ and the balances of all fixed assets and long-term investment under the heading of ‘non-current assets’.

Balance Sheet of__________ as on March 31’2018 ( In order to Permanence)

Liabilities Amount Rs. Assets Amount Rs.
Owner Funds

Capital              12000

Add: Profit         4500

16500 Non-Current Assets

Fixed Assets

15000
Non-Current Liabilities

Long Term Borrowing Loan

5000 Current Assets

Sundry Debtors

Bank/Cash

 

15500

6000

Current Liabilities

Sundry Creditors

 

15000

 
  36500   36500

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