Marshalling and Grouping of Assets and Liabilities

Marshalling and Grouping of Assets and Liabilities

A balance sheet is not just a list of balances — it must be presented in a way that helps users make decisions. This requires two things: arranging items in a logical order (marshalling) and putting similar items together under common headings (grouping).

Marshalling of Assets and Liabilities

Marshalling means arranging assets and liabilities in a particular order. There are two accepted orders:

Order of Permanence — The most permanent item is placed first, and items are arranged in decreasing order of permanence. On the assets side, fixed assets like furniture come first, then debtors (less permanent), then bank, and finally cash (most liquid, least permanent). On the liabilities side, capital comes first because it stays in the business the longest, followed by long-term loans, then creditors (a liquid liability to be paid soon).

Order of Liquidity — This is the reverse of permanence. The most liquid item comes first. On the assets side, cash comes first, then bank, then debtors, then furniture. On the liabilities side, creditors come first, then long-term loans, then capital.

The balance sheet of Ankit in the order of permanence:

The balance sheet of Ankit in the order of liquidity:

Grouping of Assets and Liabilities

Grouping means putting together items of similar nature under a common heading. For example, cash, bank, and debtors are all current assets and can be shown together under 'Current Assets'. Furniture and long-term investments are non-current assets and go under 'Non-Current Assets'.

On the liabilities side, capital and reserves are grouped as 'Owners Funds' or 'Shareholders' Funds'. Long-term loans are 'Non-Current Liabilities'. Creditors, bank overdraft, and bills payable are 'Current Liabilities'.

The balance sheet of Ankit with logical grouping (in order of permanence):