unit-17-balance-sheet

Unit-17 Balance Sheet

Learn about the Balance Sheet which is prepared for ascertaining the financial position of the business as at the end of an accounting year.

What is a Balance Sheet? Describe different methods of arranging the assets and liabilities in the Balance Sheet.

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Learning Pundits Content Team

Written on Jun 26, 2019 12:20:14 PM

Having prepared the Trading and Profit and Loss Account, and ascertained the net profit or net loss, the businessman proceeds to prepare a statement called 'Balance Sheet'.-The purpose is to ascertain the financial position of a business i.e., what it owns and what it owes on a certain date, usually, at the end of the accounting year. Hence, it is also called a Position Statement. It shows all assets and liabilities of the business as at the end of an accounting year.

The assets appear on the right hand side of the Balance Sheet and liabilities on left hand side. The various assets and liabilities should be shown in the Balance Sheet in a proper order. This is known as 'Marshalling'.

The assets may be arranged in the following two ways:

  1. In the order of liquidity.
  2. In the order of permanence


According to liquidity, cash and those assets which can be readily convertible into cash are shown first and those which cannot be so readily converted into cash are shown later. Thus, the most liquid asset is shown at the top of the list and the most permanent asset is shown at the bottom. According to permanence, the above sequence is reversed. In other words, the asset which is most permanent is shown at the top and the asset which is most liquid is shown at the bottom.

Liabilities can also be arranged in the following two ways:

  1. In the order of Dischargeability.
  2. In the order of permanence


According to Dischargeability, short-term liabilities are arranged first and long-term liabilities are shown later. In other words, the liability which is payable in the immediate future is shown at the beginning of the list and the liability which is the most permanent is shown at the bottom. If the order of permanence is followed, this arrangement is reversed.




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