Balance sheet refers to a statement that reveals the financial position of the business as on a given date. That is, the balance sheet is a description of the financial condition of the trader.
In simple words, it can be said that the statement of assets, liabilities, and capital of a business or organization at a given point of time is called balance sheet. Generally it is created at the end of the financial year of the company or organization. Balance sheet is prepared after Profit and Loss Account i.e. Profit and Loss Account
There are two sides to the balance sheet, one is the liability side and the other is the asset side. In the liability side all the liabilities of the business are written like- Capital, Creditor, Bank loan etc. And in the property side all the assets of the business are written like Cash, Debtors, Machine, Furniture, Plant etc.
The sum of both the assets and the liabilities side in the balance sheet should be equal.
Balance sheet is a report from which complete information about the assets and liabilities of a trader can be taken on a particular date. Its purpose is to tell the exact financial condition of the owner of the company at a given time so that he can determine the future work of his company.
There are two sides in the balance sheet, in which the left side is called Capital and Liabilities (Capital and Liabilities side) and the right side is called Assets and Properties.
Items falling on the Capital and Liabilities side are shown under the following five headings
Share Capital
The following types of capital are shown under this heading –
- Equity Share Capital
- Preference Share Capital
Reserve And Sur-Plus Income (accumulated and surplus)
The following types of benefits are written under this heading –
- General Reserve
- Capital Reserve
- P / L (Cr.) (Profit-Loss Deposit)
- Security Premium
Share Forfeiture
- Secured Loans
- The following types of obligations are shown under this heading –
- Debenture
- Bonds
- Bank Loan
- Mortgage Loan
Current Liabilities
The following short term liabilities are written under this heading –
- Creditor
- B / P
- Bank Overdraft
- Outstanding Expense
- Advance Income
Provisions
The following provisions are written under this heading –
- Provision For Bad Debts
- Provision For Taxation
- Provision For Repairs
Items that come under the Assets And Properties side are shown under the following three headings
- Fixed Assets
- Current Assets
- Miscellaneous Expenditure
Fixed Assets
The property in which there is no equal change is shown under this head. The names of the items included in it are as follows –
- Land And Building
- Plant And Machinery
- Furniture And Fixture
- Loose Tools
- Goodwill
- Patent Right
- Trade Marks
Current Assets
The property which keeps on changing continuously is shown in it. Its items have the following names –
- Cash
- Bank
- Debtors
- B/R
- Investment
- Stock
- Prepaid Expense
- Accrued Income
Miscellaneous Expenditure
Under this heading, unrealistic assets are shown. Some expenses and losses are shown as assets immediately but gradually they are eliminated by going to P/L Account. The following items are shown in it –
- Preliminary Expense
- Discount On Issue Of Shares
- Discount On Issue Of Debentures
- Expense On Issue Of Shares
- Expense On Issue Of Debentures
- P/L (Dr.)