Balance Sheet : Meaning, Format & Examples

Balance Sheet - Feature Image

Meaning of Balance Sheet: –

The Balance sheet is the statement showing the position of the assets and liabilities of the business in the 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 future. Capital shows the amount invested by the owner into the business entity. it is the basis on the following account equation.

Assets = Capital + Liabilities

Note: – For more details about accounting equation please click on the following link 

What is Accounting Equation | Example

The feature of the Balance Sheet: –

  1. 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 Double entry system.
  5. The balance sheet has two sides:- Left side for capital and liabilities and right side if for assets.
  6. Total of both sides always equal to each other.
  7. Helps in preparation of financial statements based on going concern concept.
  8. Disclosure of the financial position of an entity.
  9. The Expenses and incomes 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 growth rate of an entity.
  4. To reflects the outcome of investing and financing decision.
  5. To know the claim of an owner and other in the business.

Method of preparation of Balance Sheet: –

We will prepare a balance sheet from the trial balance after preparing 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 
  • 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 than 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 method, Assets are arranged in such an order that 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  300x266 - Balance Sheet : Meaning, Format & Examples
Balance Sheet Format based on Liquidity – Verticals –
Balance Sheet Format based on Permanence Verticals  300x281 - Balance Sheet : Meaning, Format & Examples
Balance Sheet Format based on Permanence – Verticals

 

Explanation of Column of Balance : –

  1. Liabilities:- In this column, all the liabilities and capital are shown in the 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 the particular sequence.
  4. Amount: – In this column, the amount of particular Asset shown.

The form of Presentation: –

The balance sheet can be presented in two form.

  1. Horizontal
  2. Vertical

Horizontal: –

The presentation of Balance sheet discussed till now is called horizontal presentation. In this form of presentation, we had present all accounts information across the page from left to right.

Verticals: –

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 is based on Liquidity 
  • Second is based on Permanence 

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

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 of 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.

 

Example: –

Prepare the balance sheet as on 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
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 the methods.

1) Based on Liquidity: –

Balance Sheet as on 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

2) Based on Permanence : –

Balance Sheet as on 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
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