Balance Sheet: Meaning, Format & Examples

Today we are covering the topic of the Balance sheet. This is the last topic of final accounts. After this topic, we will cover all adjustments of the final account which is your next chapter. In this article, you will learn the meaning of the Balance Sheet, Feature, Needs, Format, and understand it in much better ways with examples.

Meaning of Balance Sheet: -

It is the statement showing the position of the assets and liabilities of the business for a particular accounting period. It is a list of balances of the account of assets, capital, and liabilities. The value of assets shows which we can realize from the market and the value of Liabilities shows which we have to pay in the future. Capital shows the amount invested by the owner into the business entity. it is the basis of the following accounting equation.

"Assets = Capital + Liabilities"

You can check out the above equation's article from the below link which explained the concept behind it.

https://tutorstips.com/accounting-equation/

The feature of the Balance Sheet: -

1. It is prepared at the end of the Final accounts.
2. Helpful in judging the solvency of the business entity.
3. Only a statement of assets, capital, and liabilities.
4. Not an account under the Double entry system.
5. The balance sheet has two sides:- Left side for capital and liabilities and the right side if for assets.
6. The total of both sides always equal to each other.
7. Helpful in preparation of financial statements based on the Going concern concept.
8. Disclosure of the financial position of an entity.
9. The Expenses and income accounts are not shown in the balance sheet.

The need for the Balance Sheet: -

The preparation of a balance sheet is needed to:

1. Show the actual financial position of the business.
2. Provide all necessary information to related parties like an owner, equity shareholder, financial institution.
3. Provide the growth rate of a Business.
4. Reflect the outcome of investing and financing decisions.
5. Know the claim of an owner and others in the business.

Balance Sheet Format: -

We have to prepare a balance sheet from the trial balance after preparing the trading and profit/loss account. The accounts left in the trial balance after preparing the trading and profit/loss account are posted in the balance sheet. The balance sheet is based on a simple equation i.e. Assets = capital + liabilities but there are different Balance sheet formats are available. Which we can differentiate only on the basis of the presentation of the balance of accounts. The balance sheet format are based on the following thing:-

• First is based on Liquidity 
• The second is based on Permanence 

 Based on Liquidity: -

In this format of balance sheets, Assets are arranged in such an order that most liquid asset is shown first, followed by the less liquid assets. Similarly, Liabilities are arranged in such an order that most urgent payments due shown first, followed by the less urgent and then shown capital(owner's equity).

The following is the Proforma of the balance sheet:-

Name of the Entity

Balance Sheet as on 31st March, _______
Liabilities	Amount	Assets	Amount
Current Liabilities		Current Assets
Trade Creditors		Cash in hand
Bills Payable		Cash at Bank
Outstanding Expenses		Inventories
Advance/Unearned Incomes		Bills payable
Short term loans		Sundry Debtors
Non-Current Liabilities		Prepaid Expenses
long terms loans		Accrued Incomes
Debentures		Fixed/Non-Current Assets
Capital		Building
Add:  Net profit		Land
interest on Capital		Plant & machine
Less:  Drawings		Furniture & fixture
Net Loss		Goodwill

Based on Permanence: -

In this format of balance sheets, Assets are arranged in such an order that the least liquid asset is shown first, followed by the more liquid assets. Similarly, Liabilities side capital shows first and followed by the long-term/non-current liabilities and then, short terms/current liabilities.

The following is the Proforma of the balance sheet:-

Name of the Entity

Balance Sheet as on 31st March, _______
Liabilities	Amount	Assets	Amount
Capital		Fixed/Non-Current Assets
Add:  Net profit		Building
interest on Capital		Land
Less:  Drawings		Plant & machine
Net Loss		Furniture & fixture
		Goodwill
Non-Current Liabilities		Current Assets
long terms loans		Inventories
Debentures		Bills payable
Current Liabilities		Sundry Debtors
Trade Creditors		Prepaid Expenses
Bills Payable		Accrued Incomes
Outstanding Expenses		Cash in hand
Advance/Unearned Incomes		Cash at Bank
Short term loans

Or if you want to download the Format please download the following image: -

Explanation of Column of Balance: -

1. Liabilities:- In this column, all the liabilities and capital are shown in a particular sequence.
2. Amount: - In this column, the amount of particular liability or capital shown.
3. Assets:- In this column, all the Assets are shown in a particular sequence.
4. Amount: - In this column, the amount of a particular Asset shown.

The form of Presentation: -

The balance sheet can be presented in two forms.

1. Horizontal
2. Vertical

1. The Horizontal form of the Balance sheet: -

The presentation of the Balance sheet discussed until now is called horizontal presentation. In this form of presentation, we had to present all account information across the page from left to right. All assets are shown on the corresponding side of all liabilities. All liabilities are shown on the left side of the balance sheet and all assets are shown on the right side of the balance sheet.

2. The Verticals form of the Balance sheet: -

In the vertical form of presentation, we have to present all account information across the page from top to bottom. First, we show all liabilities and capital and then after all assets. It is also present in two way

• First, based on Liquidity 
• Second, based on Permanence 

The first is based on Liquidity: -

Balance Sheet as on 31st March ____________

	Note No.	Current Year	Previous Year
I. Liabilities
(1) Current Liabilities
(a) Trade Payable
(b) Other Current Liabilities
(c) Short-Term Provision
Total Current Liabilities
(2) Non-Current Liabilities
(a) long terms loans/Borrowing
(b) Other Long-Term Liabilities
Total Non-Current Liabilities
(3) Owner's Equity(Capital)
Add:  Net profit
Interest on Capital
Less:  Drawings
Net Loss
Total Owner's Equity
Total Liabilities
II. Assets
(1) Current Assets
(a) Cash in hand
(b) Cash at Bank
(c) Inventories
(d) Trade Receivables
(e) other current Assets
Total Current Assets
(2) Non-Current Assets
(a) Fixed Assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work-in-progress
(iv) Intangible assets under development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long-term loans and advances
(e) Other non-current assets
Total Non-Current Assets
Total Assets

Second is based on Permanence:- 

Balance Sheet as on 31st March ____________

Balance Sheet as on 31st March ____________	Note No.	Current Year	Previous Year
I. Liabilities
(1) Owner's Equity(Capital)
Add:  Net profit
Interest on Capital
Less:  Drawings
Net Loss
Total Owner's Equity
(2) Non-Current Liabilities
(a) long terms loans/Borrowing
(b) Other Long-Term Liabilities
Total Non-Current Liabilities
(3) Current Liabilities
(a) Trade Payable
(b) Other Current Liabilities
(c) Short-Term Provision
Total Current Liabilities
Total Liabilities
II. Assets
(1) Non-Current Assets
(a) Fixed Assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work-in-progress
(iv) Intangible assets under development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long-term loans and advances
(e) Other non-current assets
Total Non-Current Assets
(2) Current Assets
(a) Cash in hand
(b) Cash at Bank
(c) Inventories
(d) Trade Receivables
(e) other current Assets
Total Current Assets
Total Assets

Or If you want to download the Format please download the following image: -

 

 

 

 

 

 

 

 

Explanation of Column of Balance: -

Note No.: -  For every liabilities, capital and assets account a detailed note will be attached with the balance sheet. in this column, the note number will be shown in references.

Current Year: - Total of detailed note of each account is shown in this column.

Previous Year: - Total of the same account from the previous year's balance sheet will be shown in this column.

 Illustration: -

Prepare the balance sheet as of 31st March 2018

(Trial Balance only shows assets, liabilities, and capital account balances. )

Particulars	Debit balance	Credit Balance
Capital		10,00,000
Furniture & fixture	1,00,000
Land & Building	5,00,000
Sundry Creditors		70,000
Bills Receivable	15,000
Investment	500,000
Inventories	60,000
Bills payable		25,000
Sundry Debtors	50,000
Prepaid Insurance	20,000
Accrued interest on Investment	15,000
Outstanding Salary		50,000
Rent received in advance		25,000
Short term loans		40,000
Cash in hand	50,000
Cash at Bank	170,000
the loan from Bank(repayable within 7 years)		2,00,000

Net Profit for the year ended is Rs 90,000/-

Solution: -

We will solve this example with both methods.

1) Based on Liquidity: -

Balance Sheet as of 31st March 2018

Liabilities		Amount	Assets	Amount
Current Liabilities			Liquid Assets
Trade Creditors		70,000	Cash in hand	50,000
Bills Payable		25,000	Cash at Bank	1,70,000
Outstanding Expenses		50,000	Inventories	60,000
Advance/Unearned Incomes		25,000	Bills Receivable	15,000
Short term loans		40,000	Sundry Debtors	50,000
Non-Current Liabilities			Prepaid Insurance	20,000
Bank Loan		2,00,000	Accrued interest on Investment	15,000
Capital	10,00,000		Fixed/Non-Current Assets
Add:  Net profit	90,000		Land & Building	5,00,000
Less:  Drawings	20,000		Furniture & fixture	1,00,000
		10,70,000	Investment	5,00,000
		14,80,000		14,80,000

2) Based on Permanence: -

Balance Sheet as of 31st March 2018

Liabilities		Amount	Assets	Amount
Capital	10,00,000		Fixed/Non-Current Assets
Add:  Net profit	90,000		Land & Building	5,00,000
Less:  Drawings	20,000		Furniture & fixture	1,00,000
		10,70,000	Investment	5,00,000
Non-Current Liabilities			Current Assets
Bank loan		2,00,000	Inventories	60,000
			Bills Receivable	15,000
Current Liabilities			Sundry Debtors	50,000
Trade Creditors		70,000	Prepaid Insurance	20,000
Bills Payable		25,000	Accrued interest on Investment	15,000
Outstanding Expenses		50,000	Cash in hand	50,000
Advance/Unearned Incomes		25,000	Cash at Bank	1,70,000
Short term loans		40,000
		14,80,000		14,80,000

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Also, check out the guidelines by the Indian Government Body from the official website www.mca.gov.in/