Balance sheet contains the items off capital, liabilities and assets. It is the statement which shows the financial picture of the business organization.
This note has information about the items included in balance sheet.
Balance sheet contains the items off capital, liabilities and assets. It is the statement which shows the financial picture of the business organization.
This note has information about the items included in balance sheet.
Things to Remember
Capital is an amount, which is invested by the owner for the establishment and operation of the business.
The excess amount of income over expenditure is known as net profit.
The excess of expenditure over income is known as the net loss.
The amount payable to the supplier against the goods purchased on credit is called creditors.
The amount borrowed from the individual and financial institution is known as a loan.
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Items Included in Balance Sheet
Items Included in Balance Sheet
Balance sheet is the final results which shows the financial picture of the business organization. The balance sheet contains the items of capital, liabilities, and assets. The items shown by the balance sheet are as follows: -
Liability
Items included in Liabilities Side
Capital Capital is an amount, which is invested in terms of cash or other assets by the owner for the establishment and operation of the business.
Net profit or loss The amount of net profit is added to the capital and the amount of net loss is deducted from the capital.
Drawing It reduces the capital of the businessman because it is an amount drawn by the owner from the business in terms of cash or kind for his personal use. So, it is deducted from the amount of capital.
Reserve FundsReserve fund The company may create different types of funds which are created out of the profit. This funds are created to meet future contingencies and losses. The pension fund, dividend equalization fund, and sinking fund are some of the examples of the reserve fund.
Loan The amount borrowed from the individual and financial institution is known as a loan. Interest should be paid to the person or institution on the loan borrowed.
Creditors Creditors are the bank or supplier or a person that has provided credit to the company. Hence, it is created in liabilities side of a balance sheet.
Bills payable The amount of bill drawn by the creditor and accepted by the business promising in writing for paying the amount of goods purchased on credit on a certain date is called bills payable.
Bank overdraft The form of lending from a bank which allows a business to withdraw funds from its bank account is known as bank overdraft.
Outstanding expenses Expenses incurred but not yet paid, are called outstanding expenses. Outstanding expenses are the liabilities of the business.
Advance incomes The incomes received in advance before earning it are called advance incomes. Advance incomes are the liabilities of the business.
Assets
Items included in Assets Side
Fixed assets The assets like goodwill, land, building, plant and machinery, vehicles and furniture are some of the examples of fixed assets. They are created in assets side of the balance sheet.
Investment The money which is invested outside the business for earning incomes is called investment. The investment are also created in assets side of balance sheet.
Loan given The amount of loan given to the individual or corporation is an asset of the business. Interest is receivable on such lending loan.
Closing stock Closing stock are created in assets side of balance sheet as it is the value of goods remained unsold at the end of the accounting period.
Debtors Debtors are who has taken the goods on credit or money on debt. So, debtors are included in assets side of the balance sheet.
Bills receivable The amount of bill relating to the credit sale drawn to pay the amount of bill on a certain date which is drawn by business and accepted by debtors is called bills receivable.
Accrued income Income earned but not yet received is called accrued income. It is an asset of the business so it is included in assets side of balance sheet.
Prepaid expense Prepaid expense is an asset of the business which is paid in advance.
Cash at BankCash at bank The excess of deposit over withdrawal is considered as cash at the bank.
Cash in hand The cash at hand includes the amount of petty cash fund and the undeposited amount of cheque. This is created in assets side of balance sheet.
Similarities and Differences between Trial Balance and Balance Sheet
Similarities between Trial Balance and Balance Sheet
A trial balance is similar to the balance sheet in respect to the following points: -
Both trial balance and balance sheet are statements but not accounts.
Both trial balance and balance sheet are prepared on the basis of ledger balances.
Both trial balance and balance sheet are prepared on a particular date.
Both trial balance and balance sheet do not require the words ‘To’ or ‘By’ for the preparation.
Both trial balance and balance sheet show the same amount of assets and liabilities.
Differences between Trial Balance and Balance Sheet
The following are the main points of differences betweenTrial Balance and Balance Sheet: -
Bases of differences
Trial Balance
Balance Sheet
Basis
Trial balance is prepared on the basis of ledger balances.
Balance sheet is prepared on the basis of trial balance.
Purpose
The basic purpose of the trial balance is to check the arithmetical accuracy of the book of accounts.
The basic purpose of the balance sheet is to ascertain the true profit or loss of the business.
Items of adjustments
Trial balance doesn’t contain the items of adjustments.
Balance sheet is prepared by considering the items of adjustments.
Recording of stock
Trial balance generally records the value of an opening stock.
Balance sheet records the value of closing stock.
Compulsion
Preparation of the trial balance is not legally compulsory.
Preparation of balance sheet is legally compulsory.
Documentary evidence
Trial balance cannot be accepted as documentary evidence by the court.
Balance sheet is accepted as evidential proof by the court for making decisions.
Information of profit and loss
Trial balance doesn’t show the information of profit or loss.
Balance sheet always shows the information of profit and loss.
Period
Trial balance can be prepared at any time according to the requirement of the business like quarterly, half-yearly, yearly, etc.
Balance sheet is generally prepared once a year particularly at the end of the accounting period.
