Balance Sheet
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Balance Sheet

Balance Sheet Balance Sheet means a financial statement which sets out the assets and liabilities of a trading or non-trading organization as on a certain date. It is called Balance Sheet because it is a sheet of those ledger accounts which have not been closed by transferring to Trading Account and Profit and Loss Account. Thus, Balance Sheet is a statement of the financial position of a concern on a given date.

Balance Sheet

Balance Sheet means a financial statement which sets out the assets and liabilities of a trading or non-trading organization as on a certain date. It is called Balance Sheet because it is a sheet of those ledger accounts which have not been closed by transferring to Trading Account and Profit and Loss Account.

Thus, Balance Sheet is a statement of the financial position of a concern on a given date. The main characteristics of a Balance Sheet are as follows:

• Balance Sheet is always prepared on a particular date. Even a single transaction will make a difference in its contents. That is the connotation of the words "as on".

• It is prepared only after the preparation of the Profit and Loss Account.

• It contains personal and real accounts of the trial balance because the nominal accounts are transferred to Trading Account and Profit and Loss Account. However, the net result of Profit and Loss Account is shown in the Balance Sheet.

• Balance Sheet is not an account but only a statement of assets and liabilities. Assets are shown on the right hand side and liabilities on the left hand side. The excess of assets over liabilities characterizes the capital of the owner.

• It shows the financial position of a business as a going concern.

• Balance sheet is prepared from the trial balance.

Balance Sheet serves the following functions or objectives :

• Balance Sheet shows the financial position of a concern on a particular date to the owners as well as to outsiders.

• It helps the investor to know the earning capacity and financial health of the firm,

• Analysis of the Balance Sheet in the form of financial ratios can provide valuable information about the financial strength and repaying capacity of the firm. Such information is very helpful to investors and creditors for taking right decisions.

Thus, a Balance Sheet is a very important financial statement for owners, creditors and other users of accounting information. However, a single Balance Sheet is not sufficient and a comparison of Balance Sheets of several years is necessary for obtaining meaningful and valuable information. Moreover, a Balance Sheet is prepared on the basis of historical cost and, as such, does not show the current values. Accounting policies relating to inventory valuation, depreciation, etc., affect the balance Sheet. A detailed study of various schedules of assets and liabilities on which a Balance sheet is based is necessary to derive correct information about the financial position of business.

 

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