Balance Sheet: Meaning, Format & Examples

Balance Sheet - Feature Image

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.

Free Accounting book Solution - Class 11 and Class 12

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.

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: –

Balance Sheet Format based on Liquidity Verticals  - Balance Sheet: Meaning, Format & Examples
Balance Sheet Format based on Liquidity – horizontal-
Balance Sheet Format based on Permanence Verticals  - Balance Sheet: Meaning, Format & Examples
Balance Sheet Format based on Permanence – horizontal

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: –

Balance Sheet Format based on Liquidity Horizontal 1 210x300 - Balance Sheet: Meaning, Format & Examples
based on Liquidity -Vertical

Balance Sheet Format based on Permanence Horizontal 1 210x300 - Balance Sheet: Meaning, Format & Examples
based on Permanence – Vertical

 

 

 

 

 

 

 

 

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/

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