BALANCE SHEET\n\nBalance\nSheet: Balance sheet is a financial showing firm\u2019s assets and liabilities at a\ngiven point of time, say 31 march of a year. It tells us about the\nfinancial health of a firm. It tells what the firm owns and what it owes. Whatever\na firm owns are assets and what it owes are liabilities. The difference of assets\nand liabilities is called as shareholder\u2019s equity or net assets or owner\u2019s\nequity. From this discussion we get the following relation that is\n\nBALANCE SHEET\n\n\n\n\n\n Assets \u2013 liabilities = owner\u2019s equity. Assets = liabilities + owner\u2019s equity\n\n\n\nA balance sheet represents the accounting\nbalances on assets and liabilities side and not the true value. True value\nmeans that if a firm has purchased a land 20 years before than balance taken in\nbalance sheet is the amount invested at the time of purchase. The true value of\nland at the time of preparation of balance sheet would be much more than the\nvalue of land at its purchase.\n\n\n\nBalance\nsheet helps us to know the following about the financial health of a firm.\n\n\n\n\n\nSolvency\nposition. It is the capacity of firm to meet its obligations.\nProfits made by\nthe firm in the past and past trends\nCredit worthiness.\n\n\n\n\n\nBalance sheet can be prepared either\nin a horizontal format or a vertical format.in case of banking companies the\nformat of balance sheet is prescribed by the banking regulation act.\n\n\n\nBalance\nsheet horizontal format\n\n \n\n \nLIABILITIES\n\n \nASSETS\n\n \n\n \nOwners capital\n\n \nFixed assets \n\n \n\n \nLong term liabilities\n\n \nInvestments \n\n \n\n \nCurrent liabilities\n\n \nCurrent assets \n\n \n\n \n\n\n \nNon-current assets \n\n \n\n \n\n\n \nOther assets \n\n \n\n \n\n\n \nIntangible assets\n\n \n\n\n\n\nComponents\nof balance sheet: components of a balance sheet are given in the table above and described below.\n\n\n\nLIABILITIES\n\nOwner\u2019s capital: It is the contribution mad by\nthe owners of the firm. The profit earned and retained is also added under\nthis. It also includes:\n\n Reserve and surplus: Includes the profit\nretained, provisions made for some\n\nparticular purpose.\n\nShare capital money: It is the amount raised\nby selling equity above its face value.\n\nShare application money: Money intended to be\nused for issuance of shares.\n\nPreferred stock: stock having preference over\ncommon stock during liquidation of\n\nfirm.\n\n\n\nLong term\nliabilities:\n\n\n\n\n\nLiabilities which are to be paid by the firm beyond a repayment period of one year. \nThe liabilities may be secured or unsecured. \nThese are generally raised to invest in fixed assets like plant and machinery, land and building.\n\n\n\n\n\nCurrent\nliabilities: Liabilities which are repaid during a period of one year. They\n\ngenerally\ninclude sundry debtors and other liabilities.\n\n\n\nASSETS\n\n\n\nFixed assets: Investment made in plant and machinery, land and building required to run the\noperations of the firm. The investment in these assets is usually made through owners\u2019\nequity and long term liability.\n\n\n\nInvestments: Amount invested by the firm in its own subsidiaries or other companies. These\nare the financial securities owned by the firm.\n\n\n\nNon-current\nassets: Securities in which the investment done is realized beyond a period of\none year.\n\n\n\nCurrent assets: Consists of cash and other sources of fund which gets converted into cash\nduring one business cycle of the firm. These are 1. Cash 2.Inventory 3. Account receivables.\n\n\n\nIntangible assets: Assets like goodwill, copyright etc. whose value is difficult to determine and depends on managements view.