Preparation of Balance

Sheet
Sarbesh Mishra,
M.Com, M.Phil. PhD.

Assistant Professor.
Need For Balance Sheet
 Businessman would like to know the
Financial Position of the business, for this
purpose he prepares a statement of Assets
(Owns) & Liabilities (Owes). Such statement
is referred to as “Balance Sheet” & it is the
mirror of the business.
 Balance sheet has two sides, on left hand side
Liabilities of the business & on right hand
side Assets of the business appears.
12/07/21 Dr Sarbesh Mishra
Proforma of Balance Sheet
 Assets & Liabilities of a Balance Sheet
may be shown in any of the following
order:

1. Liquidity Order
2. Permanency Order

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Contd….
1. Liquidity Order – The assets which are more
readily convertible in to cash come first &
those which cannot be readily converted to
come next and so on.
E.g. Liability order – Bank overdraft, O/S Exp.,
Bills payable, Sundry Creditors, Long term
Loans, Capital.
Asset order – CIH, CAB, Prepaid Expenses, Bills
Receivable, Sundry Debtors, Closing Stock,
Fixed Assets,
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Contd…..
Liabilities can be classified in to two categories
1. Current Liabilities
2. Long Term or Fixed Liabilities
Current Liabilities – Payable within a year e.g.
Bills Payable, Trade Creditors, Outstanding
Expenses, Bank Overdraft, Short term Loans
Fixed Liabilities – Which don't become due for
payment in one year e.g. Long term Loans,
Capital etc.
12/07/21 Dr Sarbesh Mishra
Assets
It means resources acquired by the business
from the funds made available. Assets are of
these categories:
 Current Assets
 Fixed Assets
 Intangible Assets
 Fictitious Assets
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Contd…..
 Current Assets - Current assets consists
of cash & other assets which get
converted in to cash during the operating
cycle of the firm e.g. Cash, Sundry
Debtors (Accounts Receivable),
Inventories (Stocks), Loans & Advances,
Short term investments, Pre-paid
expenses
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Contd…
 Fixed Assets – Fixed assets are those
assets which is acquired for relatively
long periods for carrying on the business
of the enterprise. They not meant for
resale. E.g. Land & Building, Machinery,
Furniture

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Contd….
 Intangible Assets – Intangible assets are
those which cannot be seen or touched. E.g.
Goodwill, Patent, Trademark etc.
 Fictitious Assets – Formation expenses
incurred for establishing a business such as
registration charge paid to ROC for getting
company incorporated, discount n issue of
shares etc.
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Trial Balance
 A statement containing various ledger
balances on a particular date.
 The objective of preparation of Trial
Balance is to check the arithmetical
accuracy of the books of accounts of
business. According to Dual Aspect
concept for every debit there must be an
equivalent credit.
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Contd….
 A Trial Balance contains all item relating
to incomes, expenses, assets & liabilities.

 Trial Balance is prepared for internal use.

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Difference
Trial Balance Balance Sheet
 Meaning : Contains  It’s a statement of various
various ledger balances assets & liabilities.
on a particular date.
 Objective : Purpose is to 
To ascertain financial
check arithmetical position of the business.
accuracy of books of
accounts.
 Items Covered: Contains
 It incorporates only assets
all items relating to
incomes, expenses, assets & liabilities.
& liabilities.
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Contd…
 Preparation : Prepared  It’s prepared on the
first. Preparation of basis of Trial Balance &
Trial Balance is few other addl.
independent of Information which may
preparation of Balance not have been included
Sheet. in Trial Balance.
 Use : Meant only for  It is prepared both for
internal use. internal & external use.

12/07/21 Dr Sarbesh Mishra