Balance Sheet

Preparing the final accounts is the last stage of the accounting cycle. They help in determining the financial position of the business at the end of the financial as well as the accounting year. These include Trading account, Profit and loss account, and Balance sheet.

Balance Sheet

The balance sheet is a statement which states the assets and liabilities of a firm as at a certain date. As even a single transaction can make a difference in assets or liabilities, so the balance sheet is true only at a particular period of time. This is the significance of “asset” in the balance sheet. It is based on the accounting equation that is:

Total assets = Total liabilities + Capital

As balance sheet is a statement and not an account so there is no debit or credit side. So, Assets are shown on the right-hand side and liabilities on the left-hand side of the balance sheet.

Classification of Assets and Liabilities

Assets

Assets can be classified as:

a. Long term assets:

Long-term assets are those assets which are not to be sold by the firm and to be used for a long period of time, such types of assets are also known as Fixed assets. For example, land and building, plant and machinery, vehicles, equipment, etc.

b. Current assets:

Currents assets are those assets which can be converted into cash easily from the market. Generally within a year. For example, cash in hand, cash at bank, trade receivables, inventory, etc.

c. Intangible assets:

Intangible assets are those which cannot be seen or touched. For example, goodwill, patents, copyrights, etc.

Liabilities

Liabilities can be classified as:

a. Long term liabilities:

Long-term liabilities are those which exists for one or more than one year. For example, long-term loan from the bank.

b. Current liabilities:

Current liabilities or short-term liabilities are those which are to be settled within a year. For example, trade payables, creditors, outstanding expenses, etc.

 

Proforma of the Balance Sheet is given below

In the books of XYZ

Balance sheet

As at 31^st March

Liabilities	Amount	Assets	Amount
Capital a/c:		Tangible fixed assets:
Balance                xxxx		Land and building	Xxxx
Add: net profit/less net loss                 xxxx		Plant and machinery	Xxxx
Less: drawings    xxxx	xxxx	Vehicle	Xxxx
Long term loans:		Furniture and fixtures	Xxxx
Term loans	Xxxx	Intangible assets:
Other loans	Xxxx	Goodwill	Xxxx
Short term loans:		Patents	Xxxx
Cash credit	Xxxx	Investments:
Overdraft	Xxxx	Long term investment	Xxxx
Other loans	Xxxx	Current assets:
Current liabilities:		Cash in hand	Xxxx
Trade payables	Xxxx	Cash at bank	Xxxx
Outstanding expenses	Xxxx	Inventory	xxxx
Advance taken	Xxxx	Trade receivables	Xxxx
Provision:		Prepaid expenses	Xxxx
Provision for bad and doubtful debts	xxxx	Short term investment	Xxxx
Provision for taxation	xxxx	Advance	Xxxx
	Xxxx		Xxxx

Proper presentation of the balance sheet improves the understandability of the information that is to be communicated to its users.

Characteristics of the Balance Sheet

1) Balance sheet is prepared for a particular day rather than the entire period. It will be prepared by considering activities which happened on that particular day.

2) Total of both the sides i.e Assets and liabilities will tally otherwise it is considered as an error.

3) Preparation of balance sheet is only possible after the preparation of the profit and loss a/c. That is why the P& L Account, Balance Sheet and Cash flow Statement are collectively called Final Accounts.

Solved Example For You

From the following trial balance of Mr. Alfa prepare the trading account, profit, and loss account for the year ended 31^st March 2018 and balance sheet as on date.

Trial balance as on 31^st March 2018

Particulars	Dr amount (in Rs)	Cr amount (in Rs)
Capital		325000
Sales		485000
Purchases	215000
Opening stock	55000
Freight inward	20000
Salaries	105000
Administration expenses	75000
Furniture	175000
Trade receivables	105000
Trade  payables		95000
Purchase return	10000
Sales return		6000
Discounts	9500	4500
Bad debts	2500
Investment	50000
Cash in hand	93500
	915500	915500

Other information:

1. Closing stock amounted to Rs. 90,000
2. Depreciation on furniture @10%.

 Ans.                                                      

                                                      In the books of Mr. Alfa

Trading account

For the year ended 31^st March 2018

Particulars		Amount	Particulars		Amount
To Opening stock		55000	By Sales	485000
To Purchases	215000		Less: Sales return	(10000)	475000
Less: Purchases return	(6000)	209000	By Closing stock		90000
To Freight inward		20000
To Gross profit		281000
		565000			565000

 

Profit and loss account

For the year ended 31^st March 2018

Particulars	Amount	Particulars	Amount
To Salaries	105000	By Gross profit b/d	281000
To Administrative expenses	75000	By Discount received	4500
To Discount allowed	9500
To Bad debts	2500
To Depreciation @10%	17500
To Net profit	76000
	285500		285500

 

Balance sheet

As at 31^st March 2018

Liabilities	Amount	Assets	Amount
Capital                     325000		Furniture                      175000
Add: Net profit        76000	401000	Less: depreciation @10%                             (7500)	157500
Trade payables	95000	Cash in hand and Bank	93500
		Closing stock	90000
		Trade receivables	105000
		Investment	50000
	496000		496000