Note on Balance Sheet

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Balance Sheet
Balance Sheet

The balance sheet is a statement of assets, capital, and liabilities of the business. It is the statement, which depicts the financial position of the business on a particular date. It is not an account rather a financial statement. It presents the liability on the left-hand side and the assets on its right-hand side either in order of permanence or order of liquidity.

The following are the main definitions of the balance sheet: -

“Balance sheet is a statement of a particular date showing on one side the trader’s property and on the other side, the liabilities.” – Palmer

“Balance sheet is a list of balances in the assets and liabilities accounts. The list depicts the position of assets and liabilities of a specific business at a specific point of time.” – AICPA

“Balance sheet is a mirror, which reflect the true position of assets and liabilities of a business on a particular date,” – O. P. Gupta

Objectives of Balance Sheet

The main objectives of balance sheet are as follows: -

  1. To present the actual financial position of the business on a given date.
  2. To know the amount of trade debtors and creditors.
  3. To show nature, value and position of all the assets and liabilities.
  4. To help to determine the actual value of the business at the time of sale or liquidation.
  5. To know the amount of capital owing to the owner at the close of the year.
  6. To help to obtain a loan from financial institutions by reflecting the actual financial position of the business.
  7. To serve as an evidence for setting disputes.
  8. To help to judge the liquidity and solvency position of the business.
  9. To help to evaluate the strengths and weaknesses of the business.
  10. To supply reliable information regarding assets and liabilities for making a comparison and preparing plans and policies.

Advantages and Importance of Balance Sheet

The followings are the main advantages and importance of balance sheet: -

  1. It provides the information of assests, capital and liabilities of the business.
  2. It helpful in ascertaining the financial position of the business by showing assets and liabilities of the concern on a specific date.
  3. It discloses the solvency of business by showing how much assets are avaiable for payment of liabilities.
  4. It helps in calculation of various ratios which help in better management of business.
  5. It helps in comparison of assets and liabilities of business on two dates to ascertain the progress being made by business.
  6. It helps for settling disputes.
  7. It helps for selling the business by presenting the true value of assets and liabilities.

Ruling or Specimen of Balance Sheet

The balance sheet is prepared after preparing the profit and loss account. It is prepared at the last day of the accounting period. The specimen of balance sheet is as follows: -

Specimen of Balance Sheet
Specimen of Balance Sheet

  • Balance sheet is a statement of assets, capital and liabilities of the business.
  • Balance sheet is the statement, which depicts the financial position of the business on a particular date. 
  • Balance sheet is one of the important statements for every business organization.
  • Balance sheet provides information about assets and liabilities to different interested parties like investors, lenders, bankers, creditors, government, and shareholders. 
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Very Short Questions

The balance sheet is a statement of assets, capital, and liabilities of the business. It is the statement, which depicts the financial position of the business on a particular date.

The balance sheet is one of the important statements for every business organization. It provides information about assets and liabilities to different interested parties like investors, lenders, bankers, creditors, government, and shareholders. The main objectives of balance sheet are as follows: -

  1. To present the actual financial position of the business on a given date.
  2. To know the amount of trade debtors and creditors.
  3. To show the nature, value and position of all the assets and liabilities.
  4. To help to determine the actual value of the business at the time of sale or liquidation.
  5. To know the amount of capital owing to the owner at the close of the year.
  6. To help to obtain a loan from financial institutions by reflecting the actual financial position of the business.
  7. To serve as an evidence for setting disputes.
  8. To help to judge the liquidity and solvency position of the business.
  9. To help to evaluate the strengths and weaknesses of the business.
  10. To supply reliable information regarding assets and liabilities for making a comparison and preparing plans and policies.

The following are the main advantages and importance of balance sheet: -

  1. It presents the true financial position of the business on a particular date. It gives the information about assets, capital and liabilities of the business.
  2. It helps to judge the liquidity and solvency position of the business.
  3. It provides the information of net profit or the net loss of the business during the year. The net profit is added to the capital, and net loss is deducted from the capital.
  4. It helps to evaluate the strengths and weaknesses of the business.
  5. It provides the reliable information about assets, liabilities and capital of the business, which helps in obtaining a loan from financial institutions.
  6. It helps for settling disputes.
  7. It helps for selling the business by presenting the true value of assets and liabilities.

The balance sheet is a statement of assets, capital, and liabilities of the business. It is not an account rather a financial statement. It presents the liability on the left-hand side and the assets on its right-hand side either in order of permanence or order of liquidity.

According to Palmer,“Balance sheet is a statement of a particular date showing on one side the trader’s property and on the other side, the liabilities.”

According toO. P. Gupta,“Balance sheet is a mirror, which reflect the true position of assets and liabilities of a business on a particular date.”

From the above definition, it is clear that balance sheetis the statement, which depicts the financial position of the business on a particular date. It provides information about assets and liabilities to different interested parties like investors, lenders, bankers, creditors, government, and shareholders.

Solution:

Liabilities

Amt (Rs.)

Assets

Amt (Rs.)

Capital

10,40,000

Machine

6,80,000

Less: Net loss

80,000

9,60,000

Goodwill

37,000

Outstanding wages

Reserve fund

72,000

68,000

Furniture

Prepaid expenses

3,25,000

58,000

11,00,000

11,00,000

Solution:

Liabilities

Amt (Rs.)

Assets

Amt (Rs.)

Capital

Add: Net profit

Less: Drawing

3,00,000

16,000

3,16,000

50,000

2,66,000

Furniture

Prepaid expenses

Debtors

2,00,000

55,000

25,000

Reserve fund

Bank overdraft

9,000

5,000

11,00,000

11,00,000

Solution:

Liabilities

Amt (Rs.)

Assets

Amt (Rs.)

Capital

10,40,000

Machine

6,80,000

Less: Net loss

80,000

9,60,000

Goodwill

37,000

Outstanding wages

Reserve fund

72,000

68,000

Furniture

Prepaid expenses

3,25,000

58,000

11,00,000

11,00,000

0%
  • The balance sheet is a statement of ______ of the business.

    assets
    liabilities
    all the options are correct
    capital
  • ______ is the statement, which depicts the financial position of the business on a particular date.

    Balance sheet


    Trading account


    Profit and loss account


    Income and expenditure account


  • "Balance sheet is a mirror, which reflect the true position of assets and liabilities of a business on a particular date." Whose saying is this?

    Palmer
    AICPA
    O. P. Gupta
    Peter Drucker
  • Which one of them is not the objective of balance sheet?

    To supply reliable information regarding incomes and expenditures for making a comparison and preparing plans and policies.
    To present the actual financial position of the business on a given date.
    To know the amount of trade debtors and creditors.
    To help to determine the actual value of the business at the time of sale or liquidation.
  • Balance sheet is prepared at the ______.

    beginning day of the organization
    first day of the accounting period
    last day of the accounting period
    last day of the organiational period
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