Balance Sheet may be defined as the statement of financial position of a company that sets out (arrange and present systematically) its assets and liabilities at a certain date. The Assets are shown on the right hand side, whereas liabilities and capital on the left hand side.
Characteristics of Balance Sheet:
- Balance sheet is prepared at a particular date, rather the last day of financial year.
- Balance sheet is prepared after the preparation of profit and loss account and it includes only two types of accounts namely, Real and Personal Accounts.
- Both the sides of the balance sheet must have the same totals (must be equal to each other) and if the total does not happen to be equal, there is certainly an error.
Balance Sheet as at December 31, 2015
Ø Classification of Assets and Liabilities
Assets: The most common adopted approach is to divide assets into current assets as well as non-current assets. While preparing the balance sheet, it is preferred to list the current assets first and then non-current assets. Types of Assets include:
- Current Assets: Current assets are those assets that can be converted into cash usually within a year. For example: Cash in hand, Cash at bank, Accounts Receivable, Stock Inventory etc.
- Long Term Assets: Long term assets, also called Fixed Assets are those assets that are not expected to be converted into cash or consumed by the company over a long period. For example: Machinery, Building, Plant, Equipment, Property, Long term Investment etc.
- Intangible Assets: These are those assets that cannot be seen, touched or felt (having no physical existence). For example: Copyrights, Patents, Goodwill etc.
Liabilities: Types of Current Liabilities include:
- Current Liabilities: These are a company’s obligation that must be settled or paid within one year. These are also called short term liabilities. For example: Accounts payable, Creditors, Bills Payable, Interest Payable etc.
- Long term Liability: These are those liabilities that exist for more than one year. In other words, it is an obligation which is not due within a year. These are also called non-current liabilities. For example: Long term loan, bonds payable etc.
Ø Format of the Balance Sheet
Balance Sheet as on……
|Sundry or Trade Creditors Bills Payable Bank Overdrafts Employees Provident Fund Mortgage Reserves or Reserve Fund Capital Add: Interest on capital …. : Net Profit …. Less: Drawings …. : Income Tax …. : Interest on drawings …. : Net Loss ….||…. ….||….. ….. ….. ….. ….. ….. ….||Cash in Hand Cash at Bank Bills Receivables Sundry Debtors Closing Stock Plant and Machinery Furniture and Fittings Land and Building Goodwill||…. …. …. …. …. …. …. …. ….|