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Format of Balance Sheet

A balance sheet is a financial statement that provides a snapshot of a company's assets, liabilities and shareholder equity at a specific point in time. It is prepared at the end of an accounting period by taking the balances from the trial balance and grouping assets and liabilities into appropriate classifications, with assets on the right side and liabilities on the left side. Balance sheets can be organized according to liquidity, permanence, or a mixed approach, depending on the type of business. The key purpose is to present an accurate picture of a business's financial position at a given date.

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353 views2 pages

Format of Balance Sheet

A balance sheet is a financial statement that provides a snapshot of a company's assets, liabilities and shareholder equity at a specific point in time. It is prepared at the end of an accounting period by taking the balances from the trial balance and grouping assets and liabilities into appropriate classifications, with assets on the right side and liabilities on the left side. Balance sheets can be organized according to liquidity, permanence, or a mixed approach, depending on the type of business. The key purpose is to present an accurate picture of a business's financial position at a given date.

Uploaded by

072 Yasmin Akhtar
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Definition and Explanation

A balance sheet is a statement drawn up at the end of each trading period stating therein
all the assets and liabilities of a business arranged in the customary order to exhibit the true
and correct state of affairs of the concern as on a given date.

A balance sheet is prepared from a trial balance after the balances of nominal accounts are
transferred to the trading account or to the profit and loss account. The remaining balances
of personal or real accounts represent either assets or liabilities at the closing date. These
assets ant liabilities are shown in the balance sheet in a classified form - the assets being
shown on the right side and the liabilities on the left hand side.

Grouping and Marshalling:


In a balance sheet assets and liabilities should be properly grouped and classified under
appropriate headings. The individual balance of each debtor's and creditor's account need
not be shown. Debtors and creditors should be shown in total. The grouping together of
dissimilar assets will make the balance sheet misleading.

The term marshalling means the order in which assets and liabilities are stated on the
balance sheet as the balance sheet exhibits the financial position of a concern even to a non
technical observer. It is of great importance that the different assets and liabilities should be
arranged in the balance sheet on certain principles. The balance sheet is generally
marshaled in three ways:

1. The Order of Liquidity or Realizability:

According to this method assets are entered up in the balance sheet following the order in
which they can be converted into cash and the liabilities in the order in which they can be
paid off. The following is a format of a balance sheet based on this order:

Balance Sheet as on 31st March 2020

Liabilities Rs. Assets Rs.


 Bills Payable    Cash in hand  
 Loans  Cash at Bank
 Trade Creditors  Investments
 Capital  Bills Receivables
 Debtors
 Stock (Closing)
 Stores
 Furniture & Fixtures
 Plant & Machinery
 Land & Buildings
 

2. The Order of Permanence:


This method is the reverse of the first method. Under this method the assets are stated
according to their permanency i.e., permanent assets are shown first and less permanent
are shown one after another. Similarly the fixed liabilities are stated first and the floating
liabilities follow. The following is a specimen of a balance sheet based on this order:

Balance Sheet as on 31st March 2020

Liabilities Rs. Assets Rs.


 Capital    Land & Buildings  
 Trade Creditors  Plant & Machinery
 Loans  Furniture & Fixtures
 Bills Payable  Stores
   Stock (Closing)
   Debtors
   Bills Receivables
 Investments
 Cash at Bank
 Cash in hand
 

3. Mixed Order of Arrangement:


This method is the combination of the first two methods. Under this method the assets are
arranged in order of realisability and liabilities are arranged in order of permanence.

The first method is adopted by sol proprietors, firms and partnership concerns. The second
method is adopted by companies and the third method is adopted by banking concerns.

Objectives of the Balance Sheet:


The function of the correctly prepared balance sheet is to exhibit the true and correct view
of the state of affairs of any concern. In a balance sheet as the assets and liabilities are
shown in details after being properly valued, a trader can judge the position of his business
from it.

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