Balance Sheet

What is a Balance Sheet and how is it prepared ?

A Balance Sheet is a statement of Accounts in Financial Accounting,which is prepared to know the financial position of a business.

Financial position means,the details of Assets and Liabilities or Sources of Funds and Application of Funds.

Generally,Balance Sheet is prepared at the end of an Accounting period.

It is the final stage of Final Accounts.

Balance Sheet is prepared after completion of the following Account Books and statement.

1. Journal 

2. Ledger

3. Trial Balance

4. Manufacturing,Trading,Profit & Loss Account

   Note: in case of 

   Manufacturing business - Manufacturing,Trading and Profit & Loss is applicable.

   Trading Business - Trading and Profit & Loss is applicable.

   Service Business - Profit & Loss Account or Statement of Income is applicable.
   

For a newly started business,there is no need to prepare Balance Sheet. It is prepared only at the end of an Accounting period.

For an existing/running business the Books of Account are prepared by taking closing Balances of all the Ledger Accounts from Balance Sheet of previous(last accounting year/period) Accounting period  as Opening Balance.  

Procedure and format for preparing Balance Sheet :

Before going to prepare Balance Sheet,one must have the following documents on his/her table.

• Trial Balance.

• Profit & Loss Account.

• Closing Stock Value.

• Details of Fixed Assets with Depreciation amount.

Now it is the time,ready for preparing Balance Sheet.

Let's do a discussion about the format of Balance Sheet.

A Balance Sheet has two sides, one is Asset Side and the other is Liability Side.

Asset side : Both Fixed Assets(Land and Building,Plant & Machinery,Vehicles etc.) and Current Assets(Closing Stock,Sundry Debtors,Cash and Bank Balances etc.) are taken into consideration.

Liability side : Capital/Equity,Secured Loan,Unsecured Loan,Sundry Creditors,Other Liabilities etc. are taken into consideration.

There are two commonly used formats popular for preparing a Balance Sheet.

1. Horizontal Format

2. Vertical Format

Horizontal Format: In this format of Balance Sheet,there are two sides.

One is Asset side and the other is Liability side.

Right hand side is Asset side and the left hand side is the Liability side.

Each side consists of two columns.

Left column of each side is Particulars column and the right column is Amount column.

Sample format of a Horizontal format Balance Sheet is given below(Balance Sheet of M/s.Surya Electronic Centre,Cuttack,Odisha as at 31st March 2021)

To see Trial Balance of M/s.Surya Electronic Centre,Cuttack,Odisha - click here

To see Trading and Profit & Loss Account of M/s.Surya Electronic Centre,Cuttack,Odisha - click here

Vertical Format: In vertical format of a Balance Sheet there are no Assets and liabilities side/column,but it shows the clear picture of Assets,Liabilities and Capital/Owner's Equity.

Sample of a Vertical format Balance Sheet is given below(Balance Sheet of M/s.Surya Electronic Centre,Cuttack,Odisha as at 31st March 2021).

In the above Balance Sheet,

Net Assets utilized/employed(Application of Fund) = 342334.57

= Fixed Assets(30000)+ Working Capital(312334.57)

Working Capital(312334.57) = Current Assets(334477.43) - Current Liabilities(20000+1071.43+1071.43)

Sources of Fund = 342334.57

Capital(300000) + Net Profit(32334.57) + Loan from State Bank of India(10000)

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Related Articles :

Types of Account

Double Entry System of Book Keeping

Journal 

Ledger

Trial Balance

Trading and Profit & Loss Account

Bank Reconciliation Statement