A Balance sheet is a statement
prepared with a view to measure the financial position of a business on a
certain fixed date. The financial position of a concern is indicated by
its assets on a given data and its liabilities on that date. Excess of
assets over liabilities represent the capital and is indicative of the
financial soundness of a company. A Balance Sheet is also described as a 'statement showing the sources and application of capital'. It is a statement and not an account and prepared from real and personal accounts. The left hand
side of the balance sheet may be viewed as a description of the sources
from which the business has obtained the capital with which it
currently operates and the right hand side as a description of the form in which that capital is invested on a specified date.
On the left hand side of the balance sheet, the several liability items describe how much capital was obtained from trade creditors, from banks, from bill holders and other outside parties. The owner's equity section shows the capital supplied by the owner.
A properly drawn up balance sheet gives information relating to:
On the left hand side of the balance sheet, the several liability items describe how much capital was obtained from trade creditors, from banks, from bill holders and other outside parties. The owner's equity section shows the capital supplied by the owner.
A properly drawn up balance sheet gives information relating to:
- the nature and the value of assets,
- the nature and extent of liabilities,
- whether the firm is solvent,
- whether the firm is overtrading
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