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CHAPTER 14 BALANCE SHEET

A Balance Sheet is a statement of financial position of a business concern at a given date. It is called a Balance Sheet because it is a sheet of balances of those ledger accounts (Real & Personal Accounts) which have not been closed till the preparation of Trading and Profit and Loss Account.

After the preparation of Trading and Profit and Loss Account the balances left in the trial balance represent either personal or real accounts. In other words, they either represent assets or liabilities existing on a particular date.

Excess of assets over liabilities represent the capital and is indicative of the financial soundness of a company.

A Balance Sheet is also described as a “Statement showing the Sources and Application of Capital”.

It is a statement and not an account and prepared from real and personal accounts.

The left-hand side of the Balance Sheet may be viewed as description of the sources from which the business has obtained the capital with which it currently operates and the right-hand side as a description of the form in which that capital is invested on a specified date.

Characteristics of Balance sheet

The characteristics of a Balance Sheet are summarised as under:

A Balance Sheet is only a statement and not an account. It has no debit side or credit side. The headings of the two sides are ‘Assets’ and ‘Liabilities’.
A Balance Sheet is prepared at a particular point of time and not for a particular period. The information contained in the Balance Sheet is true only at that particular point of time at which it is prepared.
A Balance Sheet is a summary of balances of those ledger accounts which have not been closed by transfer to Trading and Profit and Loss Account.
A Balance Sheet shows the nature and value of assets and the nature and the amount of liabilities at a given date.

Classification of assets and liabilities in a balance sheet

Assets

Assets are the properties possessed by a business and the amount due to it from others.

The various types of assets are:

 Fixed Assets: All assets that are acquired for the purpose of using them in the conduct of business operations and not for reselling to earn profit are called fixed assets. These

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assets are not readily convertible into cash in the normal course of business operations. Useful life more than one year.

 Current Assets: All assets which are acquired for reselling during the course of business are to be treated as current assets. Examples are cash and bank balances, inventory, accounts receivables, etc.

 Tangible Assets: There are definite assets which can be seen, touched and have volume such as machinery, cash, stock, etc.

 Intangible Assets: Those assets which cannot be seen, touched and have no volume but have value are called intangible assets. Goodwill, patents and trade marks are examples of such assets.

 Fictitious Assets: Fictitious assets are not assets at all since they are not represented by any tangible possession. They appear on the asset side simply because of a debit balance in a particular account not yet written off e.g. Deferred revenue expenditure, discount on issue of Debentures etc.

 Contingent Assets: Contingent assets come into existence upon the happening of a certain event or the expiry of a certain time. If that event happens, the asset becomes available otherwise not, for example, sale agreement to acquire some property, hire purchase contracts etc.

Liabilities

A liability is an amount which a business is legally bound to pay. It is a claim by an outsider on the assets of a business.

The liabilities of a business concern may be classified as:

 Long Term Liabilities: The liabilities or obligations of a business which are not payable within the next accounting period but will be payable within next five to ten years are known as long term liabilities. Public deposits, debentures, bank loan are the examples of long-term liabilities.

 Current Liabilities: All short-term obligations generally due and payable within one year are current liabilities. This includes trade creditors, bills payable etc.

 Contingent Liabilities: A contingent liability is one which is not an actual liability. They become actual on the happenings of some event which is uncertain. In other words, they would become liabilities in the future provided the contemplated event occurs.

Since such a liability is not actual liability it is not shown in the Balance Sheet. Usually it is mentioned in the form of a footnote below the Balance Sheet.

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FORMAT OF BALANCE SHEET

The page contains the following Balance Sheet format:

Balance Sheet as at……

Liabilities	Amount ₹	Assets	Amount ₹
Capital		Land and Building
Reserves & Surplus		Plant & Machinery
Outstanding Expenses		Furniture & Fixtures
Loans		Stock
Trade Creditors		Sundry Debtors
Bills Payable		Bills Receivable
		Other Investments
		Government Securities
		Cash at Bank
		Cash in Hand

The original visual table has Liabilities and Amount on the left and Assets and Amount on the right, under the heading “Balance Sheet as at…”.

YouTube Link for Lecture:

Channel Name:

Lateef’s Commerce Academy

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Visual content included

The main visual in this PDF is the Balance Sheet format on page 60. It lists:

Liabilities:

Capital
Reserves & Surplus
Outstanding Expenses
Loans
Trade Creditors
Bills Payable

Assets:

Land and Building
Plant & Machinery
Furniture & Fixtures
Stock
Sundry Debtors
Bills Receivable
Other Investments
Government Securities
Cash at Bank
Cash in Hand