What is a Accounting balance sheet? Importance and objective of balance sheet

what is a Accounting Balance Sheet?
What is a Accounting  balance sheet? Importance and objective of balance sheet

A balance sheet is a statement prepared to know the financial position of a business organization at a given date. It is a mirror which reflects the true position of the assets and liabilities on a particulars date. So balance sheets is also knows as statement of financial position. It is prepared at t

he end of an accounting period & after completing the preparation of trading and profit & loss account. Thus balance sheet is the statement of ledger balance, not including in the income statement (trading profit and loss a/c & p/l appropriation account).
Importance and objective of balance sheet
Balance sheet is one of importance financial statement of a business organization showing the financial condition at a particular date. It provides relevant information for various interested particles like investors, lenders, creditors, government, shareholder, banker and general public.
The following are main importance and objectives of preparing balance sheet.
• It assets the financial position of a company showing the true and fair picture of assets and liabilities.
• If depicts the nature and value of different kinds of assets.
• It also provides relevant information regarding sources of funds and the application.
• It is also of good importance for fixing the purchase consideration of the company.
Treatment of items appearing in the trail balance
If any item of adjustment appears inside the trial balance, it will be shown only once to one appropriate place in the final account. The treatment of such item has been shown below:

Item given in trial balance Treatment in trading or profit and loss a/c Treatment in balance sheet
Closing stock - Shown on the assets side as a current assets
Purchase wages, carriage inward and other factory expenses Shown on debit of trading -
Sales (net) Shown on debit of trading -
Salaries, rent, printing, insurance, advertising and other administising and selling expenses Shown on debit of trading account -
Outstanding expenses/ accrued expenses - Shnown on the liabilities side as current assert
Prepaid expenses Shown on the liabilities side an a current liabilities.
Accrued income - Shown on the assets side as a current assets
Unearned income - Shown on the assets side as a current assets
depreciation Shown on the debit side of p & l a/c as a separate item -
bad debts if no provision for doubtful debts a/c appears Shown on the debit side of p & l a/c as a separate item -
discount allowed Shown on the debit side of p & l a/c as a separate item -
provision for bad debt Detected from new provision for bad debt or shown on the credit side of profit and loss a/c -
discount/commission/rent/interest etc. received Shown on the credit side of profit and loss a/c -

Preparation of balance sheet
Balance sheet is prepared on a particular or specific date after the preparation of profit and loss account. The left hand side includes capital and liabilities and right hand side includes the various assets of the business on a particular date.

A general format of balance sheets is presented below:
Capital and liabilities Amount rs. Assets Amount rs.
Capital
Opening capital
Add: net profit
Add: additional capital
Add: interest on capital
Less: drawing
General reserve
Reserve and found
Contingency reserve
Secured loan
Bank loan
Long term loan
Interest accrued on loans
Unsecured loan
Short term loan from bank
Fixed deposit
Current liabilities
Bills payable
Bank overdraft
Creditor
Income received in advance
Outstanding expenses
Bills payable
Bank overdraft
Other current liabilities
Provision
Pension fund
Bonus fund
Provision for staff benefit scheme







Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx


Xxx
Xxx
Xxx

Xxx

Xxx



Xxx
Xxx

Assets
Fixed assets
Goodwill
Land and building
Lease hold
Railway sidings
Furniture and fittings
Development properties
Patent, trademarks and design
Live stock
Vehicles
Loose tools
Fixed deposit with public
Investment
Investment on government securities
Investment in share and debenture
Current assets, loans and advance

Current assets
Interest due on investment
Stores and spare parts
Stock in trade
Work in trade
Work in progress
Sundry debtors
Cash in hand
Cash at hand
Loans and advance
Prepaid expenses
Miscellaneous expenditure
Preliminary expenses