What is a Balance Sheet?
The Balance Sheet is a statement that shows the financial position of the business. It records the
assets and liabilities of the business at the end of the accounting period after the preparation of
trading and profit and loss accounts.
A balance sheet is a statement of the assets, liabilities, and capital of a business or other organization at
a particular point in time, detailing the balance of income and expenditure over the preceding period. It
enables them to compare current assets and liabilities to determine the business’s liquidity, or calculate
the rate at which the company generates returns. Comparing two or more balance sheets from different
points in time can also show how a business has grown.
Characteristic Of Balance Sheet:
It is a statement of assets and liabilities.
The total of Assets side must be equal to Liabilities sides.
It is prepared at a particular date.
It helps in ascertaining the financial position of the business.
Is is a statement not an account .
Both debit and credit should be equal.(if they are not equal a suspense account is created .
Component Of Balance Sheet:
i. Assets:
An assets is something that a company or an organization owns and is beneficial for the
organization. They are bought to increase the Revenue of the organization. They are reported in Balance
Sheet. They are further Classified as Current Assets, Non-Current Assets, tangible and intangible assets.
Current Assets
Current assets are resources that have shorter life. They might get converted into cash or get used
in one year.
Non-Current Assets
Non-Current assets are resources with an expected life of greater than a year, such as plants,
equipment, and buildings.(They might get depreciate after one year).
, Tangible Assets
Intangible assets are the resources that have physical presence. They include stocks /inventory
and equipment.
Intangible Assets
Intangible assets are the resources that have no physical presence. They include trademarks,
copyrights, and goodwill.
ii. Liability:
A liability is something a person or company owes to other organization .This includes debts and other
financial obligations that arise as an outcome of business transactions. There are two Type of liabilities
Current Liability: This has to be paid in one year.
Non-Current Liability: This does not need to be paid in one year. They are due more than one year.
iii. Capital /Owner Equity:
The amount of money that would be returned to a company's shareholders if all of the assets were
liquidated and all of the company's debt was paid off in the case of liquidation.
The equity value can be positive or negative. If the shareholder’s equity is positive, then the company
has enough assets to pay off its liabilities. If it is negative, then liabilities exceed assets.
Importance of Balance Sheet:
Balance sheets help current and potential investors better understand where their funding will go and what
they can expect to receive in the future.
The balance sheet is particularly important because it keeps you and other stakeholders informed of your
financial position. Keeping this information updated can help you make better management decisions. In
addition, it can help improve your operational efficiency, borrowing, and overall financial health.
Creditors, investors, and other stakeholders use this financial tool to know the financial
status of a business.It is used to analyse a company’s growth by comparing different
years.While applying for a business loan, a company has to submit a balance sheet to the
bank.Stakeholders can find out the business accomplishment and liquidity position of a
company.Company’s balance sheet analysis can detect business expansion and future
expenses.
The Balance Sheet is a statement that shows the financial position of the business. It records the
assets and liabilities of the business at the end of the accounting period after the preparation of
trading and profit and loss accounts.
A balance sheet is a statement of the assets, liabilities, and capital of a business or other organization at
a particular point in time, detailing the balance of income and expenditure over the preceding period. It
enables them to compare current assets and liabilities to determine the business’s liquidity, or calculate
the rate at which the company generates returns. Comparing two or more balance sheets from different
points in time can also show how a business has grown.
Characteristic Of Balance Sheet:
It is a statement of assets and liabilities.
The total of Assets side must be equal to Liabilities sides.
It is prepared at a particular date.
It helps in ascertaining the financial position of the business.
Is is a statement not an account .
Both debit and credit should be equal.(if they are not equal a suspense account is created .
Component Of Balance Sheet:
i. Assets:
An assets is something that a company or an organization owns and is beneficial for the
organization. They are bought to increase the Revenue of the organization. They are reported in Balance
Sheet. They are further Classified as Current Assets, Non-Current Assets, tangible and intangible assets.
Current Assets
Current assets are resources that have shorter life. They might get converted into cash or get used
in one year.
Non-Current Assets
Non-Current assets are resources with an expected life of greater than a year, such as plants,
equipment, and buildings.(They might get depreciate after one year).
, Tangible Assets
Intangible assets are the resources that have physical presence. They include stocks /inventory
and equipment.
Intangible Assets
Intangible assets are the resources that have no physical presence. They include trademarks,
copyrights, and goodwill.
ii. Liability:
A liability is something a person or company owes to other organization .This includes debts and other
financial obligations that arise as an outcome of business transactions. There are two Type of liabilities
Current Liability: This has to be paid in one year.
Non-Current Liability: This does not need to be paid in one year. They are due more than one year.
iii. Capital /Owner Equity:
The amount of money that would be returned to a company's shareholders if all of the assets were
liquidated and all of the company's debt was paid off in the case of liquidation.
The equity value can be positive or negative. If the shareholder’s equity is positive, then the company
has enough assets to pay off its liabilities. If it is negative, then liabilities exceed assets.
Importance of Balance Sheet:
Balance sheets help current and potential investors better understand where their funding will go and what
they can expect to receive in the future.
The balance sheet is particularly important because it keeps you and other stakeholders informed of your
financial position. Keeping this information updated can help you make better management decisions. In
addition, it can help improve your operational efficiency, borrowing, and overall financial health.
Creditors, investors, and other stakeholders use this financial tool to know the financial
status of a business.It is used to analyse a company’s growth by comparing different
years.While applying for a business loan, a company has to submit a balance sheet to the
bank.Stakeholders can find out the business accomplishment and liquidity position of a
company.Company’s balance sheet analysis can detect business expansion and future
expenses.
