Balance Sheet

Balance Sheet

Meaning: a STATEMENT (not an account, since it has no debit/credit totalling in the trading sense) showing the assets, liabilities, and capital of a business as on a particular date. It is prepared AFTER the Trading and Profit and Loss Account, because the Net Profit/Loss figure and the Closing Stock figure both flow into it.

Classification of assets:

• Fixed Assets — long-term assets held for use in the business, not for resale (land, building, plant and machinery, furniture).
• Current Assets — assets expected to be converted into cash, sold, or consumed within the accounting year (closing stock, debtors, bills receivable, cash and bank balances, prepaid expenses).
• Fictitious Assets — items that are not real, saleable assets, but are shown as assets purely as an accounting convenience (e.g. an unwritten-off balance of deferred revenue expenditure — see the Capital and Revenue Transactions chapter).

Classification of liabilities:

• Fixed (Long-term) Liabilities — obligations not due within the near future (long-term loans, e.g. a loan repayable after several years).
• Current Liabilities — obligations due to be settled within the accounting year (creditors, bills payable, bank overdraft, outstanding expenses).
• Capital — the owner's own investment in the business, adjusted for the year's Net Profit/Loss and any Drawings.

Format used in Tamil Nadu (traditional T-shape, Liabilities on the left, Assets on the right):

Marshalling is the ORDER in which assets and liabilities are listed:

• Order of Permanence — the most permanent (least liquid) item listed FIRST (e.g. Goodwill/Land first, Cash last). Commonly used by sole traders in India, and the order followed in this chapter's illustrations. …