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Balance sheet

A statement that lists the detail of Assets, liabilities and capital. Balance sheet represents the financial position of a business at a specific date. It contains the balances of assets, liabilities and capital accounts as opposed to income statement that shows the details of revenues and expenses of a business earned and incurred during a specific accounting period


Things you should know about a Balance sheet

  • Balance sheet is prepared at the end of accounting period of a business after the preparation of income statement
  • Balance sheet is not an account; it is a report or statement like income statement, statement of cash flow and statement of changes in equity
  • Balance sheet discloses the financial position of a business unlike the income statement which shows the profitability of a business
  • Balance sheet consists of two parts or sides the assets side and liabilities + capital side. Both sides should be equal Assets=Capital+liabilities
  • If you subtract current liability from current assets, it will come up the figure of net working capital which shows the business’s resources in a form that is readily convertible into cash
  • You should not write “account” after each item (like rent expenses account) in Balance sheet


Format of a Balance sheet


X.Y.Z Company
Balance Sheet
As on 31 Dec, 2011

                 ASSETS
AMOUNT
             LIABILITIES+CAPITAL
AMOUNT
Current Assets
Cash in hand
Cash at bank
Bills receivable
Supplies
Account receivable
Prepaid rent expense
Intangible Assets
Copy right
Trade mark
Goodwill
Fixed Assets
Land
Building
Vehicles
Plant and machinery
Long term investments
Investment in mutual fund
investment in Govt. securities

 $2000
 $5000
 $1000
 $1000
 $2000
 $3000

 $4000
 $5000
 $7000

 $9000
 $8000
 $5000
 $7000

 $1000
 $2000
Capital (opening)
Add: Net income
Add: Fresh Capital
Less: Drawings
Capital (closing)
Long term Liabilities
Mortgage loan
Bank loan
Short term liabilities 
Account payable
Bills payable
Rent payable
Outstanding interest expense


 $30,000
 $5000
 $1000
 $5000
 $31000

 $11000
 $12000

 $1000
 $4000
 $1000
 $2000
                       TOTAL
 $62000
                      TOTAL
 $62000



Assets

Assets are tangible or intangible resources or things that are controlled by a business entity and posses the future economic benefits for the entity. Assets are presented in balance sheet at their book value or carrying value

Examples of Assets
Plant and machinery, Cash, Securities, money orders, cherub, bank drafts buildings, vehicles, inventories, equipments, precious metals, debtors, prepaid expenses etc

Current assets

Cash or easily coverable into cash within the short period of time (e.g. 3 months) for example cash, inventory, debtors, prepaid expenses etc

Long-term investments

Investment for more than 12 months and not intended to be sold in near future

Examples

  Investments in securities like bonds, shares, debentures etc..
  Investments in special funds (for example mutual fund, sinking funds or pension funds).
  Investments in fixed assets that are not for business operations (for example building held for sale).

Fixed assets

Assets that will be used more than 12 months For example land, buildings, machinery, furniture, tools etc.

Intangible assets

Non-touchable assets for example patents, franchises, copyrights, trade names, goodwill, trademarks, Preliminary expenses etc.

Tangible assets

Touchable assets for example equipments, currencies, buildings, real estate, vehicles, inventories or stock, metals etc.

Fictitious assets

Fictitious assets are those assets that don't have realisable value (sale value). Fictitious assets are expenditures which provide future economic benefits over a long period of time. All fictitious assets can be classified as intangible assets but all intangible assets (copy rights, trade mark) can't be considered as fictitious assets

Examples
Preliminary expenses of a company, discount on issuance of debentures and shares, underwriting commission etc.


Reserves

Also known as Reserve fund, contingencies reserve etc

Funds that are kept aside for meeting some expected and unexpected losses or contingencies of a business. The fund kept apart will not be drawn by the business’s owner for his/her personal use

Liabilities

Liabilities are the obligations (like debts or loans payable) of a business entity that result in outflow of assets in future which eventually decrease economic benefits of a business.

Examples
Creditors/accounts payable, bank loan, mortgage loan, Salaries Payable, Accrued interest expenses, Bills payable, Advances from Customers and other outstanding expenses and unearned incomes

Current liabilities

Current liabilities are also known as short term liability. These liabilities are payable in short period of time (for example these liabilities are payable in twelve months)

Examples
Trade Creditors or accounts payable, Short Term Borrowings of a business, Salaries Payable, Accrued rent expenses, Bills payable Advances from Customers

Non-current liabilities

Also known as long term liabilities. These liabilities are payable after a long period of time (for example these liabilities are payable after twelve months)

Examples
Bank loan, mortgage loan, debentures and other long term bank loans that are payable after 12 months

By convention, the liabilities that are payable within the 12 months are classified as current or short term liabilities and those liabilities that are payable after 12 months can be considered as non-current or long term liabilities