Balance Sheet Format, Preparation & Importance

Balance sheets play a very important role in determining the financial health of an entity. Do you want to know more about the balance sheet format, then we have got everything covered here.

A balance sheet is defined as one of the reports of a financial statement that provides information about the financial condition of any entity or company on a given date.The sheet format is a very important part of the financial sector as all the profits and losses happening in an entity can be determined by checking the balance sheet of that entity.

All companies must maintain a balance sheets for every financial year as it provides an excellent idea to the investors and creditors about the financial conditions of that entity. All the assets and liabilities of an entity are taken into record while maintaining a balance sheets. 

Are you searching for some detailed information about the balance sheet format? Then, we would like to tell you that you have landed at the perfect place as we will be sharing all the insights about the importance, formats, and requirements of a balance sheet. In this blog post, you will get every detail about a balance sheet you might be searching for.

What is a Balance Sheet?

A balance sheet is defined as a valuable financial statement that provides details about the financial health of a company or entity.

why balance sheet is prepared

1. It provides a lot of information about the financial conditions that are used to analyze financial stability and business performance for a particular financial year.
2. The balance sheet equation is a report version where the total number of assets is equal to the total number of liabilities plus the shareholder’s capital. All the investors and creditors of an entity check out the sheet to get an idea of how efficiently an entity can use its resources and assess the value of all its investments.

Balance Sheet Format: Components of a Balance Sheet

A balance sheet has three components, and these are as follows:

1. Assets

• These are the resources or things that an entity owns. These assets have some monetary value and are grouped on a balance sheet. The most common way is by dividing the assets into non-current and current categories. Generally, everyone lists the assets in order of liquidity or how easily they can be converted into cash.
• Current assets are the resources that will be used within a short period, maybe within a year. Some current assets include account receivables, prepaid expenses, inventory, cash, bonds, stocks, short-term investments, advance payments, money in transit, and prepaid expenses.
• Non-current assets are resources that provide benefits for a long time, maybe for more than a year or even longer than that. Some non-current assets are goodwill, trademarks, patents, long-term investments, equipment, machinery, buildings, land, and other immovable properties.

2. Liabilities

• These are the debts the entity owes to others. Just as assets, liabilities are also divided into current and non-current groups. All the liabilities have a due date, meaning all the debts must be cleared on a particular date provided by the lender.
• Current liabilities are the company’s debts to clear within a year. These include annual taxes, loans that must be paid within a year, employee wages, and accounts payable. Non-current liabilities are dues to be paid after a year or more. These include company bond issues andlong-terms loans.

3. Capital or Owner’s Equity

• Owner’s equity is also termed stockholder’s equity, and it is the amount invested by the shareholders in the company. Some examples of owner’s equity are retained earnings, public or private stocks, and funds or capital that the owner invested in the company. 

Why Are Balance Sheets Important?

Balance sheets represent the financial conditions of any entity or company. It is extremely important as it is used to gather information about a company’s performance. 

A company is in loss or profits; everything is decided after checking the balance sheet. Here are some of the importance:

1. It is a tool or report that is used by investors, creditors, and stakeholders to check the financial conditions of a company.
2. It is a very important document that has to be submitted to the investment groups or any bank to get a business loan.
3. It is a document that is used to measure the growth of a company by comparing the balance sheets of different years.
4. It is used to make decisions regarding the expansion of the company by inviting more investments. 
5. It helps the stakeholders to get a good idea of the business performance.
6. If any company is funding its working with its profit or debt, it can be done by surveying the balance sheet.

Overall, we can say that all the financial conditions and financial decisions of an entity are made by analyzing and inspecting a balance sheet. These were some of the major important sectors where the sheet is used. Now, it’s time for you to know the sample format of a balance sheet. 

Balance Sheet Format – Sample

There are several format; every entity can use any format based on their requirement. 

1.Old Balance Sheet Format

The old balance sheet format that was termed T-shaped or horizontal format is as below.

Company Name
Balance Sheet
For the Period Ended………..
Liabilities	Amount in Rs	Amount in Rs	Assets	Amount in Rs	Amount in Rs
Capital And Reserves			Fixed Assets
Opening Capital Balance	XXXX		Land	XXXX
Reserves and Surplus	XXX		Less: Depreciation	(XX)	XXXX
Less: Drawings	(XXX)
Capital Balance		XXXX	Building	XXXX
			Less: Depreciation	(XX)	XXXX
Secured Loans
Long term debt		XXX	Investments
Other long-term liabilities		XXX	Long term Investments		XXX
Unsecured Loans			Current Assets, Loans and Advances
Cash credit payable		XXX	Inventory		XXX
			Cash and cash equivalents		XXX
Current Liabilities			Other current assets		XXX
Trade Payables		XXX
Accrued Interest		XXX	Prepaid expenses		XX
Other Current Liabilities		XXX	Miscellaneous expenditure		XX
Total Liabilities		XXXX	Total Assets		XXXX

2. New Balance Sheet Format

The new balance sheet format lists all the liabilities and equities at the top and all the assets at the bottom. The new format is also termed the vertical format balance sheet. 

Company Name
Balance Sheet as at……………..
Particulars	Note No.	Figures asoft the end of the current reporting period	Figures as of the end of the previous reporting period
I. EQUITY AND LIABILITIES
1) Shareholder’s Funds (a) Share Capital (b) Reserves and Surplus (c) Money received against share warrants
(2) Share application money pending allotment
(3) Non-Current Liabilities (a) Long-term borrowings (b) Deferred tax liabilities (Net) (c) Other Long term liabilities (d) Long term provisions
(4) Current Liabilities (a) Short-term borrowings (b) Trade payables (c) Other current liabilities (d) Short-term provisions
Total
II.Assets
(1) Non-current assets (a) Fixed assets (i) Tangible assets (ii) Intangible assets (iii) Capital work-in-progress (iv) Intangible assets under development (b) Non-current investments (c) Deferred tax assets (net) (d)Long-term loans and advances (e) Other non-current assets
(2) Current assets (a) Current investments (b) Inventories (c) Trade receivables (d) Cash and cash equivalents (e) Short-term loans and advances (f) Other current assets
Total

How to Prepare a Balance Sheet?

To create a balance sheet, follow these steps:

1. Identify the Date of the Balance Sheet: The sheet should be prepared as of a specific date, typically the end of the month or quarter.
2. Gather Financial Information: You will need information about the company’s assets, liabilities, and equity. This information can be obtained from the company’s accounting records, such as its general ledger, accounts payable and receivable, and bank statements.
3. Organize the Information into Three Sections: Assets, Liabilities, and Equity.
   • Assets: List the company’s assets in order of liquidity, meaning the order in which they are most likely to be converted into cash. This section should include current assets, such as cash and accounts receivable, as well as non-current assets, such as property, plant, and equipment.
   • Liabilities: List the company’s liabilities in order of maturity, meaning the order in which they are due to be paid. This section should include current liabilities, such as accounts payable and short-term loans, as well as non-current liabilities, such as long-term loans and bonds payable.
   • Equity: This section should show the residual interest in the assets of the company after deducting liabilities. It includes the company’s capital stock, retained earnings, and any other reserves.
4. Balance the Balance Sheet: It should balance, meaning that the sum of assets should equal the sum of liabilities and equity.
5. Review and Present the Balance Sheet: Finally, review the sheet for accuracy and completeness and present it clearly and concisely.

FAQs: Balance Sheet Format

What is a balance sheet used for?

Balance Sheet is used to assess the company's assets, liabilities, and equity. The balance sheet shows what a company owns (assets), what it owes (liabilities), and the difference between the two (equity).

What are signs of a strong balance sheet?

A strong balance sheet is an indicator of a company's financial health and stability. Here are some signs of a strong balance sheet: 1. Adequate liquidity 2. Low debt-to-equity ratio 3. High level of assets 4. Positive working capital 5. Strong profitability

As per government rules and regulations, all companies must maintain a balance sheet. These are some of the major details about the balance sheet. We will be back soon with more such updates. Till then stay, connected with Vakilsearch.

Other Related Articles

• Golden Rules of Accounting
• MCA for Accounts and Audit
• ROC Annual Filing and Requirements