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Balance Sheet: Meaning, Format & Examples

Balance Sheet - Feature Image
Balance Sheet - Feature Image

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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.

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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: –

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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 AmountAssets 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 AmountAssets 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    
    

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

Balance Sheet - Format based on Liquidity - horizontal
Balance Sheet Format based on Liquidity – horizontal-
Balance Sheet Format based on Permanence - horizontal
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: –

Format based on Liquidity - Vertical
based on Liquidity -Vertical

Format based on Permanence - Vertical
based on Permanence – Vertical

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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 & fixture1,00,000 
Land & Building5,00,000 
Sundry Creditors 70,000
Bills Receivable15,000 
Investment500,000 
Inventories 60,000 
Bills payable  25,000
Sundry Debtors 50,000 
Prepaid Insurance20,000 
Accrued interest on Investment15,000 
Outstanding Salary  50,000
Rent received in advance 25,000
Short term loans  40,000
Cash in hand 50,000 
Cash at Bank170,000 
the loan from Bank(repayable within 7 years)
 2,00,000
   

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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 AmountAssets Amount 
Current Liabilities   Liquid Assets  
Trade Creditors 70,000Cash in hand50,000
Bills Payable 25,000Cash at Bank1,70,000
Outstanding Expenses 50,000Inventories60,000
Advance/Unearned Incomes     25,000Bills Receivable15,000
Short term loans     40,000Sundry Debtors50,000
Non-Current Liabilities   Prepaid Insurance20,000
Bank Loan 2,00,000Accrued interest on Investment15,000
Capital10,00,000 Fixed/Non-Current Assets 
Add:  Net profit90,000 Land & Building5,00,000
Less:  Drawings 20,000 Furniture & fixture1,00,000
  10,70,000Investment5,00,000
     
 14,80,000 14,80,000

2) Based on Permanence: –

Balance Sheet as of 31st March 2018
Liabilities AmountAssets Amount 
Capital10,00,000 Fixed/Non-Current Assets 
Add:  Net profit90,000 Land & Building5,00,000
Less:  Drawings20,000 Furniture & fixture1,00,000
  10,70,000Investment5,00,000
Non-Current Liabilities   Current Assets  
Bank loan 2,00,000Inventories60,000
   Bills Receivable15,000
Current Liabilities   Sundry Debtors50,000
Trade Creditors    70,000Prepaid Insurance20,000
Bills Payable  25,000Accrued interest on Investment15,000
Outstanding Expenses     50,000Cash in hand  50,000
Advance/Unearned Incomes25,000Cash at Bank1,70,000
Short term loans         40,000  
 14,80,000 14,80,000

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Comment if you have any questions.

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

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