Balance Sheet

The balance sheet is a statement of assets, capital, and liabilities of the business. It is the statement, which depicts the financial position of the business on a particular date. It is not an account rather a financial statement. It presents the liability on the left-hand side and the assets on its right-hand side either in order of permanence or order of liquidity.

The following are the main definitions of the balance sheet: -

“Balance sheet is a statement of a particular date showing on one side the trader’s property and on the other side, the liabilities.” – Palmer

“Balance sheet is a list of balances in the assets and liabilities accounts. The list depicts the position of assets and liabilities of a specific business at a specific point of time.” – AICPA

“Balance sheet is a mirror, which reflect the true position of assets and liabilities of a business on a particular date,” – O. P. Gupta

Objectives of Balance Sheet

The main objectives of balance sheet are as follows: -

1. To present the actual financial position of the business on a given date.
2. To know the amount of trade debtors and creditors.
3. To show nature, value and position of all the assets and liabilities.
4. To help to determine the actual value of the business at the time of sale or liquidation.
5. To know the amount of capital owing to the owner at the close of the year.
6. To help to obtain a loan from financial institutions by reflecting the actual financial position of the business.
7. To serve as an evidence for setting disputes.
8. To help to judge the liquidity and solvency position of the business.
9. To help to evaluate the strengths and weaknesses of the business.
10. To supply reliable information regarding assets and liabilities for making a comparison and preparing plans and policies.

Advantages and Importance of Balance Sheet

The followings are the main advantages and importance of balance sheet: -

1. It provides the information of assests, capital and liabilities of the business.
2. It helpful in ascertaining the financial position of the business by showing assets and liabilities of the concern on a specific date.
3. It discloses the solvency of business by showing how much assets are avaiable for payment of liabilities.
4. It helps in calculation of various ratios which help in better management of business.
5. It helps in comparison of assets and liabilities of business on two dates to ascertain the progress being made by business.
6. It helps for settling disputes.
7. It helps for selling the business by presenting the true value of assets and liabilities.

Ruling or Specimen of Balance Sheet

The balance sheet is prepared after preparing the profit and loss account. It is prepared at the last day of the accounting period. The specimen of balance sheet is as follows: -