Note on Items Included in Balance Sheet

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Items Included in Balance Sheet

Balance sheet is the final results which shows the financial picture of the business organization. The balance sheet contains the items of capital, liabilities, and assets. The items shown by the balance sheet are as follows: -

Liability
Liability

Items included in Liabilities Side

  1. Capital
    Capital is an amount, which is invested in terms of cash or other assets by the owner for the establishment and operation of the business.

  2. Net profit or loss
    The amount of net profit is added to the capital and the amount of net loss is deducted from the capital.

  3. Drawing
    It reduces the capital of the businessman because it is an amount drawn by the owner from the business in terms of cash or kind for his personal use. So, it is deducted from the amount of capital.

  4. Reserve Funds
    Reserve Funds
    Reserve fund
    The company may create different types of funds which are created out of the profit. This funds are created to meet future contingencies and losses. The pension fund, dividend equalization fund, and sinking fund are some of the examples of the reserve fund.

  5. Loan
    The amount borrowed from the individual and financial institution is known as a loan. Interest should be paid to the person or institution on the loan borrowed.

  6. Creditors
    Creditors are the bank or supplier or a person that has provided credit to the company. Hence, it is created in liabilities side of a balance sheet.

  7. Bills payable
    The amount of bill drawn by the creditor and accepted by the business promising in writing for paying the amount of goods purchased on credit on a certain date is called bills payable.

  8. Bank overdraft
    The form of lending from a bank which allows a business to withdraw funds from its bank account is known as bank overdraft.

  9. Outstanding expenses
    Expenses incurred but not yet paid, are called outstanding expenses. Outstanding expenses are the liabilities of the business.

  10. Advance incomes
    The incomes received in advance before earning it are called advance incomes. Advance incomes are the liabilities of the business.

Assets
Assets

Items included in Assets Side

  1. Fixed assets
    The assets like goodwill, land, building, plant and machinery, vehicles and furniture are some of the examples of fixed assets. They are created in assets side of the balance sheet.

  2. Investment
    The money which is invested outside the business for earning incomes is called investment. The investment are also created in assets side of balance sheet.

  3. Loan given
    The amount of loan given to the individual or corporation is an asset of the business. Interest is receivable on such lending loan.

  4. Closing stock
    Closing stock are created in assets side of balance sheet as it is the value of goods remained unsold at the end of the accounting period.

  5. Debtors
    Debtors are who has taken the goods on credit or money on debt. So, debtors are included in assets side of the balance sheet.

  6. Bills receivable
    The amount of bill relating to the credit sale drawn to pay the amount of bill on a certain date which is drawn by business and accepted by debtors is called bills receivable.

  7. Accrued income
    Income earned but not yet received is called accrued income. It is an asset of the business so it is included in assets side of balance sheet.

  8. Prepaid expense
    Prepaid expense is an asset of the business which is paid in advance.

  9. Cash at Bank
    Cash at Bank
    Cash at bank The excess of deposit over withdrawal is considered as cash at the bank.

  10. Cash in hand
    The cash at hand includes the amount of petty cash fund and the undeposited amount of cheque. This is created in assets side of balance sheet.

Similarities and Differences between Trial Balance and Balance Sheet

Similarities between Trial Balance and Balance Sheet

A trial balance is similar to the balance sheet in respect to the following points: -

  • Both trial balance and balance sheet are statements but not accounts.
  • Both trial balance and balance sheet are prepared on the basis of ledger balances.
  • Both trial balance and balance sheet are prepared on a particular date.
  • Both trial balance and balance sheet do not require the words ‘To’ or ‘By’ for the preparation.
  • Both trial balance and balance sheet show the same amount of assets and liabilities.

Differences between Trial Balance and Balance Sheet

The following are the main points of differences betweenTrial Balance and Balance Sheet: -

Bases of differences

Trial Balance

Balance Sheet

Basis

Trial balance is prepared on the basis of ledger balances.

Balance sheet is prepared on the basis of trial balance.

Purpose

The basic purpose of the trial balance is to check the arithmetical accuracy of the book of accounts.

The basic purpose of the balance sheet is to ascertain the true profit or loss of the business.

Items of adjustments

Trial balance doesn’t contain the items of adjustments.

Balance sheet is prepared by considering the items of adjustments.

Recording of stock

Trial balance generally records the value of an opening stock.

Balance sheet records the value of closing stock.

Compulsion

Preparation of the trial balance is not legally compulsory.

Preparation of balance sheet is legally compulsory.

Documentary evidence

Trial balance cannot be accepted as documentary evidence by the court.

Balance sheet is accepted as evidential proof by the court for making decisions.

Information of profit and loss

Trial balance doesn’t show the information of profit or loss.

Balance sheet always shows the information of profit and loss.

Period

Trial balance can be prepared at any time according to the requirement of the business like quarterly, half-yearly, yearly, etc.

Balance sheet is generally prepared once a year particularly at the end of the accounting period.

  • Capital is an amount, which is invested by the owner for the establishment and operation of the business. 
  • The excess amount of income over expenditure is known as net profit.
  • The excess of expenditure over income is known as the net loss. 
  • The amount payable to the supplier against the goods purchased on credit is called creditors.
  • The amount borrowed from the individual and financial institution is known as a loan. 
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Very Short Questions

  1. Fixed assets
    The assets, which are bought for sing in the business for long-term purpose is called, fixed assets. Goodwill, land, building, plant and machinery, vehicles and furniture are some of the examples of fixed assets.

  2. Investment
    The amount of money, which is invested outside the business for earning incomes, is called investment.

  3. Loan given
    The amount of loan given to the individual or corporation is an asset of the business. Interest is receivable on such lending loan.

  4. Closing stock
    Closing stock represents the value of goods remained unsold at the end of the accounting period.

  5. Accrued income
    Income earned but not yet received is called accrued income. Accrued income is an asset of the business.

  1. Fixed assets
    The assets, which are bought for sing in the business for long-term purpose is called, fixed assets. Goodwill, land, building, plant and machinery, vehicles and furniture are some of the examples of fixed assets.

  2. Investment
    The amount of money, which is invested outside the business for earning incomes, is called investment.

  3. Loan given
    The amount of loan given to the individual or corporation is an asset of the business. Interest is receivable on such lending loan.

  4. Closing stock
    Closing stock represents the value of goods remained unsold at the end of the accounting period.

  5. Accrued income
    Income earned but not yet received is called accrued income. Accrued income is an asset of the business.

A trial balance is similar to the balance sheet in respect to the following points: -

  • Both trial balance and balance sheet are statements but not accounts.
  • Both trial balance and balance sheet are prepared on the basis of ledger balances.
  • Both trial balance and balance sheet are prepared on a particular date.
  • Both trial balance and balance sheet do not require the words ‘To’ or ‘By’ for the preparation.
  • Both trial balance and balance sheet show the same amount of assets and liabilities.

The following are the main points of differences betweenTrial Balance and Balance Sheet: -

Bases of differences

Trial Balance

Balance Sheet

Basis

Trial balance is prepared on the basis of ledger balances.

Balance sheet is prepared on the basis of trial balance.

Purpose

The basic purpose of the trial balance is to check the arithmetical accuracy of the book of accounts.

The basic purpose of the balance sheet is to ascertain the true profit or loss of the business.

Items of adjustments

Trial balance doesn’t contain the items of adjustments.

Balance sheet is prepared by considering the items of adjustments.

Recording of stock

Trial balance generally records the value of an opening stock.

Balance sheet records the value of closing stock.

Compulsion

Preparation of the trial balance is not legally compulsory.

Preparation of balance sheet is legally compulsory.

Documentary evidence

Trial balance cannot be accepted as documentary evidence by the court.

Balance sheet is accepted as evidential proof by the court for making decisions.

Information of profit and loss

Trial balance doesn’t show the information of profit or loss.

Balance sheet always shows the information of profit and loss.

Period

Trial balance can be prepared at any time according to the requirement of the business like quarterly, half-yearly, yearly, etc.

Balance sheet is generally prepared once a year particularly at the end of the accounting period.

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  • The balance sheet contains the items of ______.

    capital
    liabilities
    assets
    all the options are correct
  • ______ is the statement which shows the financial picture of the business organization.

    Trading account


    Profit and loss account


    Final account


    Balance sheet


  • The excess amount of income over expenditure is known as ______.

    gross loss


    net profit


    gross profit


    net loss


  • Expense paid in advance is called ______.

    selling expenses


    prepaid expenses


    preliminary expenses


    outstanding expenses


  • Expenses incurred but not yet paid, are called ______.

    prepaid expenses


    non of them


    preliminary expenses


    outstanding expenses


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What type of assest is goodwill


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