Q.(a) What is grouping of assets and liabilities ?
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Start your 14-day free trial to unlock the full solution →Grouping of assets and liabilities is the practice of showing items of a similar kind together under a common heading in the balance sheet; the order in which the groups are then arranged is called marshalling. This question also asks you to marshal a specimen balance sheet in the order of liquidity, i.e. most-liquid assets first and earliest-due liabilities first.
(a) What is grouping of assets and liabilities?
When a balance sheet is prepared, dozens of individual items appear (cash, bank, debtors, stock, furniture, building, creditors, loans, capital, etc.). To make the statement clear and useful, items of a similar nature are put together under a common head — this is called grouping.
For example:
- All items that are cash or quickly convertible into cash are grouped as Current Assets (cash, bank, debtors, bills receivable, stock, prepaid expenses).
- All items held for long-term use are grouped as Fixed / Non-current Assets (furniture, plant, building, goodwill).
- Short-term dues are grouped as Current Liabilities (creditors, bills payable, outstanding expenses, bank overdraft).
- Long-term dues are grouped as Non-current Liabilities (long-term loans), and the owner's funds as Capital.
The order in which these groups are presented is called marshalling, and it can be done in two ways: (i) order of liquidity, or (ii) order of permanence. This is a standard topic in the Kerala Plus One (DHSE) Accountancy 'Financial Statements' unit, aligned with the NCERT/CBSE Class-11 curriculum.
(b) Balance sheet items in the ORDER OF LIQUIDITY (with imaginary figures)
In order of liquidity, the most liquid asset (cash) is shown first and the least liquid last; on the liabilities side the liability payable earliest is shown first and capital (repaid last) at the end.
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Bank overdraft | 10,000 | Cash in hand | 5,000 |
| Bills payable | 15,000 | Cash at bank | 20,000 |
| Sundry creditors | 40,000 | Bills receivable | 12,000 |
| Outstanding expenses | 5,000 | Sundry debtors | 38,000 |
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