Book-Keeping and Accountancy · Ch 9 — Final Accounts of a Proprietary Concern
The Balance Sheet — Meaning, Format and Marshalling
The Balance Sheet — Meaning, Format and Marshalling
The Balance Sheet is the third part of Final Accounts. Unlike the Trading and Profit and Loss Accounts, it is not an account at all (it has no debit/credit 'to'/'by' entries and is never transferred anywhere) — it is a statement that lists, on a chosen date, everything the business owns (assets) on one side and everything it owes (liabilities, including the proprietor's own capital) on the other.
Why it always balances. The Balance Sheet is built on the fundamental Accounting Equation:
Capital + Liabilities = Assets
This is not a coincidence — every transaction a business ever records affects this equation in a way that keeps both sides equal (double-entry itself guarantees it), so a correctly prepared Balance Sheet's two sides must always be equal in total.
Format of the Balance Sheet (Std XI follows the traditional 'T' format, liabilities on the left, assets on the right):
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital | XXX | ||
| Add: Net Profit (or Less: Net Loss) | XXX/(XXX) | Fixed Assets: | |
| Less: Drawings | (XXX) | — Land and Building | XXX |
| XXX | — Plant and Machinery | XXX | |
| Long-term Liabilities: | — Furniture and Fixtures | XXX | |
| — Loan from Bank | XXX | ||
| Current Liabilities: | Current Assets: | ||
| — Sundry Creditors | XXX | — Closing Stock | XXX |
| — Bills Payable | XXX | — Sundry Debtors | XXX |
| — Outstanding Expenses | XXX | — Bills Receivable | XXX |
| — Prepaid Expenses | XXX | ||
| — Cash at Bank | XXX | ||
| — Cash in Hand | XXX | ||
| Total | XXX | Total | XXX |
Marshalling of assets and liabilities. "Marshalling" means arranging the items of a Balance Sheet in a particular, logical order, rather than listing them randomly. Two orders are recognised:
- Order of Liquidity (used by sole traders/partnerships, the order generally followed in this syllabus): assets are listed starting with the most liquid (Cash in Hand, Cash at Bank) and ending with the least liquid (Land and Building); liabilities are listed starting with those payable soonest (Bank Overdraft, Creditors, Bills Payable) and ending with those payable last (Capital).
- Order of Permanence (used mainly by companies): the exact reverse — assets start with the least liquid/most permanent (Land and Building) and end with the most liquid (Cash in Hand); liabilities start with Capital and end with those payable soonest. …
A statement (not an account) showing a business's assets and liabilities, including the proprietor's capital, as they stand on a given date; built on the accounting equation …
The arrangement of assets and liabilities in a Balance Sheet in a logical order — either the Order of Liquidity (most liquid item first) or the Order of Permanence (least …