Prepare the format of balance sheet and explain the various elements of balance sheet.

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Q. Prepare the format of balance sheet and explain the various elements of balance sheet.

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Concept understanding — Balance Sheet Presentation

Balance Sheet Presentation – A First Look

Think of your own finances. You have some things you own – a phone, a bike, maybe some cash in your pocket. And you have some things you owe – maybe you borrowed money from a friend, or you have a pending fee payment. If you wrote down everything you own on one side and everything you owe (plus what's truly yours) on the other, you'd have a personal balance sheet.

That's exactly what a company does. The Balance Sheet is a snapshot of a business's financial position at a single point in time – usually the last day of the accounting year. It shows two sides that must always be equal:

Assets = Liabilities + Capital

This is the fundamental accounting equation. The Balance Sheet is not an account – it's a statement. It doesn't get debited or credited. It simply presents the balances of real accounts (assets) and personal accounts (liabilities) plus the capital account, after all transactions for the year have been recorded and the Profit & Loss Account has been closed.

Why Does It Matter?

The Balance Sheet answers three critical questions for anyone reading it – owners, banks, investors, tax authorities:

What does the business own? (Assets – from cash to machinery to buildings)
What does the business owe to outsiders? (Liabilities – loans, creditors, outstanding expenses)
What is the owner's stake? (Capital – the net worth)

If the Balance Sheet doesn't balance, something is wrong in the books. That's why it's the final check after preparing the Trial Balance and the Profit & Loss Account.

The Format (as per NCERT Class 12)

The Companies Act, 2013 prescribes a specific format for the Balance Sheet. It is divided into two sides:

Left Side (Liabilities + Capital)	Right Side (Assets)
1. Shareholders' Funds	1. Non-Current Assets

Share Capital | - Fixed Assets (Tangible & Intangible)
Reserves & Surplus | - Non-Current Investments
Money received against share warrants | - Long-term Loans & Advances 2. Share Application Money pending allotment | 2. Current Assets 3. Non-Current Liabilities | - Current Investments
Long-term Borrowings | - Inventories
Deferred Tax Liabilities (Net) | - Trade Receivables
Other Long-term Liabilities | - Cash & Cash Equivalents
Long-term Provisions | - Short-term Loans & Advances 4. Current Liabilities | - Other Current Assets
Short-term Borrowings |
Trade Payables |
Other Current Liabilities |
Short-term Provisions |

Note

This is the vertical format (also called the "order of liquidity" format) used by companies. For sole proprietors and partnerships, a simpler horizontal format is common, but the principle is identical.

Accounting Treatment – What Gets Debited/Credited?

The Balance Sheet itself is never debited or credited. It is a statement of balances. However, the items that appear on it come from accounts that were debited or credited during the year.

Here's how the major items originate:

Balance Sheet Item	Originates From	Debit/Credit Nature
Capital	Capital Account	Credit balance (owner's claim)
Reserves & Surplus	Profit & Loss Appropriation Account	Credit balance (undistributed profit)
Long-term Borrowings	Loan Account (e.g., Bank Loan)	Credit balance (liability)
Trade Payables	Creditors Account	Credit balance (amount owed)
Fixed Assets	Asset Account (e.g., Machinery A/c)	Debit balance (what the business owns)
Inventories	Stock Account	Debit balance (goods on hand)
Trade Receivables	Debtors Account	Debit balance (amounts due from customers)
Cash & Bank	Cash/Bank Account	Debit balance (positive cash)

Watch out

A common mistake: students think the Balance Sheet is "balanced" by making a journal entry. No – it balances because the accounting equation always holds. Every debit has a matching credit somewhere.

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Balance Sheet Format and Its Elements

A Balance Sheet is a financial statement that shows the financial position of a business on a specific date. It is prepared under Schedule III of the Companies Act, 2013 (for companies) or the traditional Horizontal/Vertical format for non-corporate entities.

Format of Balance Sheet (Vertical Form – as per Schedule III)

Particulars	Note No.	Amount (₹)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital
(b) Reserves and Surplus
2. Non-Current Liabilities
(a) Long-term Borrowings
(b) Deferred Tax Liabilities (Net)
(c) Other Long-term Liabilities
(d) Long-term Provisions
3. Current Liabilities
(a) Short-term Borrowings
(b) Trade Payables
(c) Other Current Liabilities
(d) Short-term Provisions
Total		XXX
II. ASSETS
1. Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets
(ii) Intangible Assets
(iii) Capital Work-in-Progress
(b) Non-Current Investments
(c) Deferred Tax Assets (Net)
(d) Long-term Loans and Advances
(e) Other Non-Current Assets
2. Current Assets
(a) Current Investments
(b) Inventories
(c) Trade Receivables
(d) Cash and Cash Equivalents
(e) Short-term Loans and Advances
(f) Other Current Assets
Total		XXX

Elements of a Balance Sheet

1. Assets – Resources owned by the business that provide future economic benefits. They are classified as:

Non-Current Assets: Held for long-term use (e.g., land, building, machinery, patents).
Current Assets: Expected to be converted into cash within one year (e.g., inventory, debtors, cash).

2. Liabilities – Obligations of the business arising from past transactions. They are classified as: …

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A company's Balance Sheet is prepared in the vertical format prescribed by Schedule III of the Companies Act, 2013. It has two parts — I. Equity and Liabilities (Shareholders' Funds, Non-Current Liabilities, Current Liabilities) and II. Assets (Non-Current Assets, Current Assets) — whose totals are always equal.

The Balance Sheet of a Company

The Balance Sheet is a statement of the financial position of a company on a particular date. For a company it is not a free-form T-account; the Companies Act, 2013 requires it to be presented in the vertical form of Schedule III, which classifies every item as current or non-current and shows figures for both the current and the previous reporting period.

Format of the Balance Sheet (Schedule III, vertical form)

Particulars	Note No.	Figures as at the end of Current Reporting Period (₹)	Figures as at the end of Previous Reporting Period (₹)
I. EQUITY AND LIABILITIES
1. Shareholders' Funds
(a) Share Capital
(b) Reserves and Surplus
(c) Money received against share warrants
2. Share Application money pending allotment
3. Non-Current Liabilities
(a) Long-term Borrowings
(b) Deferred Tax Liabilities (Net)
(c) Other Long-term Liabilities
(d) Long-term Provisions
4. Current Liabilities
(a) Short-term Borrowings
(b) Trade Payables
(c) Other Current Liabilities
(d) Short-term Provisions
Total
II. ASSETS
1. Non-Current Assets
(a) Fixed Assets: (i) Tangible (ii) Intangible (iii) Capital work-in-progress (iv) Intangible assets under development
(b) Non-current Investments
(c) Deferred Tax Assets (Net)
(d) Long-term Loans and Advances
(e) Other Non-current Assets
2. Current Assets
(a) Current Investments
(b) Inventories
(c) Trade Receivables
(d) Cash and Cash Equivalents
(e) Short-term Loans and Advances
(f) Other Current Assets
Total

The Elements of the Balance Sheet

1. Shareholders' Funds — the owners' claim on the company. It comprises Share Capital (authorised, issued, subscribed, called-up and paid-up, with full detail in the Notes), Reserves and Surplus (Capital Reserve, Securities Premium, Capital Redemption Reserve, Debenture Redemption Reserve, General Reserve, and Surplus — the balance of the Statement of Profit and Loss, a debit balance being shown as a negative figure), and Money received against share warrants. …

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Q.Prepare the format of balance sheet and explain the various elements of balance sheet.

The Balance Sheet of a Company

Format of the Balance Sheet (Schedule III, vertical form)

The Elements of the Balance Sheet

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