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Balance Sheet – Importance, Sample Format, Requirement

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

Balance Sheet Format: 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. Balance sheets are 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.

It is compulsory for all companies to maintain a balance sheet 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 the record while maintaining a balance sheet. 

Are you searching for some detailed information about balance sheets? 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. A balance sheet provides a lot of information about the financial conditions that are used to analyze financial stability and business performance for a particular financial year. 

The balance sheet equation is basically 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 balance sheet in order to get an idea of how efficiently an entity can use its resources and assess the value of all its investments. A balance sheet has three most important sections, 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 of time, 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, building, 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 debts that the company has 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 and long 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 are the representation of the financial conditions of any entity or company. A balance sheet is extremely important as it is used to gather information about a company’s performance. 

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

  • It is a tool or report that is used by investors, creditors, and stakeholders to check the financial conditions of a company. 
  • It is a very important document that has to be submitted to the investment groups or to any bank in order to get a business loan
  • It is a document that is used to measure the growth of a company by comparing the balance sheets of different years. 
  • It is used to make decisions regarding the expansion of the company by inviting more investments. 
  • It helps the stakeholders to get a good idea of the business performance.
  • If any company is funding its working with their 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 balance sheet is used. Now, it’s time for you to know the sample format of a balance sheet. 

Sample Format Of Balance Sheet

There are several formats of a balance sheet; every entity can use any format on the basis of their requirement. 

  1. Old Format Of Balance Sheet

The old format of a balance sheet 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 Format Of Balance Sheet

The new format of the balance sheet list all the liabilities and equities on the top and all the assets are listed at the bottom. The new format is also termed vertical format balance sheet. 

Company Name
Balance Sheet as at……………..
Particulars Note No. Figures as at the end of current reporting period Figures as at the end of 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

As per government rules and regulations, it is mandatory for all companies to 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

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