Balance Sheet: Meaning, Format & Examples

The Balance Sheet is the statement showing the financial position of the business. This is a mandatory statement for every type of business whose turnover is more than 1 crore.

Meaning of Balance Sheet: –

The Balance Sheet is the statement showing the position of the assets and liabilities of the business in a particular accounting period. It is a list of balances of ledger account of assets, capital, and liabilities. The value of assets showing 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 account equation.

“Assets = Capital + Liabilities“

What is Accounting Equation | Example

The feature of the Balance Sheet: –

1. The Balance Sheet is prepared at the end of Final accounts.
2. It is helpful in judging the solvency of the business entity.
3. It is 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. Helps 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: –

1. It needs to show the actual financial position of the entity.
2. It needs to provides all necessary information to related parties like an owner, equity shareholder, financial institution.
3. Provide the growth rate of an entity.
4. To reflects the outcome of investing and financing decisions.
5. To know the claim of an owner and others in the business.

Method of preparation of Balance Sheet: –

We will prepare a balance sheet from the trial balance after preparing the trading and profit &loss account we have left only assets, liabilities, and capital account in the trial balance. So these all left accounts are posted in the balance sheet. The balance sheet is based on a simple equation i.e. Assets = capital + liabilities but in the methods of preparation, the only difference is of presentation of the balance of accounts. These methods are based on the following thing:-

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

 Based on Liquidity: –

In this method, 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:-

Based on Permanence: –

In this method, 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:-

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 present all accounts 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 

First is based on Liquidity: –

Second is based on Permanence:- 

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 details note will be attached with the balance sheet. in this column, the note number will be shown in references.

Current Year: – Total of detail note of each account is shown in this column.

Previous Year: – Total of the same account from the previous year 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. )

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

Solution: –

We will solve this example with both methods.

1) Based on Liquidity: –

2) Based on Permanence: –

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