The purpose of preparing a Balance sheet is
- To know the nature and value of assets of the business
- To ascertain the total liabilities of the business.
- To know the position of owner’s equity.
The Balance Sheet consists of the assets and liabilities of a company, the format of the Balance Sheet is shown below
Format:
Balance Sheet As on xx-xx-20xx of Ms.XXAssets
Assets represents everything which a business owns and has money value. In other words, asset includes possessions and properties of the business. Assets are classified as follows:Tangible Assets:
Assets which have some physical existence are known as tangible assets. They can be seen, touched and felt, e.g. Plant and Machinery Tangible assets are classified into
- Fixed assets: Assets which have long period of life and cannot be converted into cash in a short period are termed as fixed assets.
- Current assets: Assets which can be converted into cash in the ordinary course of business and are held for a short period are known as current assets. For example, cash in hand, cash at bank, sundry debtors etc.
The assets which have no physical existence and cannot be seen or felt. They help to generate revenue in future, e.g. goodwill, patents, trademarks etc.
Liabilities
The amount which a business owes to others is liabilities. Credit balances of personal and real accounts together with the capital account are liabilities.- Long Term Liabilities : Liabilities which are repayable after a long period of time are known as Long Term Liabilities. For example, capital, long term loans etc.
- Current Liabilities : Current liabilities are those which are repayable within a year. For example, creditors for goods purchased, short term loans etc.
- Contingent liabilities : It is an anticipated liability which may or may not arise in future. For example, liability arising for bills discounted. Contingent liabilities will not appear in the balance sheet.
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