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Accounting For Managers - Preparation of Final Accounts

Balance Sheet, Form And Presentation Of A Balance Sheet

   Posted On :  26.01.2018 05:13 am

The balance sheet is basically a historical report showing the cumulative effect of past transactions. It is often described as a detailed expression of the following fundamental accounting equation:

Assets = Liabilities + Owners’ Equity (Capital)

 

Assets are costs which represent expected future economic benefits to the business enterprise. However, the rights to assets have been acquired by the Enterprise as a result of past transactions.

Liabilities also result from past transactions. They represent obligations which require settlement in the future either by conveying assets or by performing services. Implicit in these concepts of the nature of assets and liabilities is the meaning of owners’ equity as the residual interest in the assets of the enterprise.

Form And Presentation Of A Balance Sheet

Two objectives are dominant in presenting information in a balance sheet. One is clarity and readability; the other is disclosure of significant facts within the framework of the basic assumptions of accounting. Balance sheet classification, terminology and the general form of presentation should be studied with these objectives in mind.

It is proposed to explain the various aspects of the balance sheet with the help of the following typical summarized balance sheet of an imaginary Partnership firm:

 

Illustration A:

Sundaram & Sons 

Balance Sheet As At 31st December 2011

Conventions Of Preparing The Balance Sheet:

 

 

There are two conventions of preparing the balance sheet, the american and the english. According to the american convention, assets are shown on the left hand side and the liabilities and the owners’ equity on the right hand side. Under the english convention just the opposite is followed i.e. Assets are shown on the right hand side and the liabilities and owners’ equity are shown on the left hand side. In the illustration `a’, the american convention has been followed.

 

Forms Of Presenting The Balance Sheet:

 

 

There are two forms of presenting the balance sheet – account form and report form. When the assets are listed on the left hand side and liabilities and owners’ equity on the right hand side, we get the account form of balance sheet. It is so called because it is similar to an account. An alternative practice is the report form of balance sheet where the assets are listed at the top of the page and the liabilities and owners’ equity are listed beneath them. In illustration `a’ we have followed the account form of balance sheet. Now-a-days joint stock companies present balance sheet in the form of a statement in the annual reports. To illustrate, the balance sheet of ali akbar ltd. Pondicherry as on 31-3-2012 is given below:

Illustration `b’:

 

Ali akbar ltd.Balance sheet as on 31-3-2012


Notes On The Accounts:

 

 From the above balance sheet it would have been found that previous years figures are also given. As per the companies act, 1956 it is mandatory for the companies to give figures for the previous year also. Further one would have noticed the “schedule” column in the above balance sheet. The schedules attached to the balance sheet give details of the respective items. For e.g. Schedule 3 gives details of the secured loan as given below:


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