Connect with us

Hi, what are you looking for?

Accounting

Balance Sheet Format

The balance sheet format of a company provides precise information about its financial stability and position. According to accounting theory, the balance sheet represents the reported form of the accounting equation, in which assets equal liabilities + equity. Before making an investment, investors and creditors typically consult the company’s balance sheet format.

Top 3 crucial components of a Balance Sheet

Balance sheet analysis can provide valuable insights into an entity’s financial position. The following highlights the significance of the balance sheet

  • Assets: A controlled resource with future economic value.
  • Liabilities: When obligations occur during a business, the entity’s resources may be spent due to the obligation.
  • Equity: The amount of money that the Shareholders have invested in a company.

Significance of a Balance Sheet

The analysis of a company’s balance sheet can reveal a great deal about the company’s financial status. The following highlights the significance of the balance sheet

  • The balance sheet serves as a tool to assist investors, creditors, and other stakeholders in determining the financial health of a business.
  • Comparing year-to-year balance sheets can show an entity’s growth.
  • When applying for a business loan, the financial report (balance sheet ) is an essential document that the bank requires.
  • A balance sheet is a valuable tool for determining an organisation’s financial health.
  • A company’s balance sheet format enables its owner to take appropriate steps to expand a company or project.

A balance sheet format

A company’s assets, capital, and liabilities can be displayed using the balance sheet format. The factors used to classify balance sheet formats. The criteria used are subjective because they may be customised to a specific purpose or reflect the conventional approach of displaying the business’s assets and liabilities. Each format has benefits and drawbacks.

This financial position report is available in account format and report form. The account form is divided into two columns, with assets on the left side and liabilities of the company and equity on the right side. Consider this in terms of debits and credits. Debit accounts are shown on the left, and credit accounts are shown on the right.

The report form includes only one column. This is a more typical report format used by businesses. First comes assets, then liabilities, and finally, equity.

Assets are divided into two categories in both formats current assets and long-term assets. Assets with a life span of more than one year are called long-term assets, whereas those with a shorter one are called current assets.

Classification of the balance sheet format

Classification of the balance sheet based on the criterion for item presentation on the balance sheet

There are two ways to present a balance sheet in this categorisation;

  • Vertical format (also known as “T” shape format)
  • The horizontal format

1. Vertical format (also known as “T” shape format) –

The vertical format is often referred to as the T format because the arrangement of the financial information resembles the capital letter “T” in the English language. That means there are two sides to the format, one on the right and one on the left. There is no specific rule on which side of the balance sheet to put assets and liabilities. However, all assets, whether non-current assets, intangible assets, or current assets, are reported on the left-hand side. The right side records capital and liabilities. The reverse entry is equally essential, but only if no items are mixed up.

Advantages –

  • Financial statements are simple — since all balance sheet components are listed straight away.
  • Appropriate for small firms —the T format is best suited for small businesses, particularly those not dominated by many transactions.
  • Simple to prepare—anyone with basic bookkeeping knowledge may create this form of the balance sheet since it is self-contained in that if assets are reported on the left, the remaining items are recorded on the right.

Disadvantages –

  • Previously, the IAS allowed the use of the T format. A new IFRS rule mandates that companies prepare their balance sheets in a horizontal style. This eliminates the T format from consideration.
  • Because the format is not flexible enough to accommodate a specific point of detail, it is not a better match. For instance, IFRS requires that balance sheets be summarised with notes providing additional insight. This is not possible with the T format.

2. The horizontal format –

The balance sheet elements are recorded horizontally in this format, without taking sides. In other words, the prose format is used.

Advantages –

  • It appears to be more professional than the T format.
  • Flexible to adapt in indicating specifics like further explanations in the form of notes
  • By presenting the current assets and current liabilities in a more understandable format, it is possible to demonstrate the working capital item more detailedly in the report.

Disadvantages –

  • Not suitable for managerial decision-making since it limits the comparability of figures.
  • Preparation is more complicated than the T format because there are two different sides to keep in mind when recording.
  • A novice accountant or bookkeeper is more likely to make mistakes like mixing up an item than an experienced one.

Formats for Balance Sheets in PDF

Fixed-format balance sheets in PDF can be used to produce identical balance sheets time and again. You can alter the format of a PDF balance sheet and create a predefined pattern that must be followed. Once it is fixed, you can reuse the format to create multiple balance sheets with the same formatting.

Balance Sheet Components

  • Equity and Liabilities This measure indicates how much cash the company ‘owes’ to others.
  • Shareholders’ Funds This section outlines the shareholder’s financial contribution to the business.
  • Share Capital Amount of capital raised through the shares issued. There are two types of capital in this structural system equity and preference.
  • Reserves and Surplus This category includes retained earnings and dividends. Reserve funds, debenture redemption surpluses, general reserves, revaluation reserves, and surplus are all included in this category.
  • Non-Current Liabilities These are liabilities that can be paid off more than a year after the date of the report.
  • Long-term Debt Long-term financial institutions and significant bank term loans are long-term borrowings.
  • Deferred tax liabilities A deferred tax liability occurs when the tax allowance exceeds the financial reporting charge.
  • Long-term plans Employee benefit provisions are classified as long-term provisions. This term refers to provident funds, leave encashment, gratuity, and superannuation funds.
  • Current Liabilities These are short-term obligations that must be paid off in less than a year.
  • Borrowing for the Short Term Short-term borrowings must be repaid within a year. It comprises corporate bonds, working capital loans, and corporate deposits.
  • Trade Payables When products are purchased on credit, the amount owed to the supplier is known as a trade payable. Sundry debtors and outstanding bills are included in this category.
  • Provisions for the short term related to the firm’s dividend and tax provisions.
  • Assets Firm-owned resources that bring future market benefits.
  • Non-current assets Non-current assets have a life expectancy of more than a year.
  • Fixed Assets Fixed assets are those purchased by a corporation for long-term usage and are not readily transformed into cash.
  • The tangible assets A tangible asset is a resource that may be used in its physical form. It includes land, buildings, automobiles, furniture, plants, and other items.
  • Intangible Assets Intangible assets are assets that do not have a physical shape or structure, like copyright, patents, trademarks, designs, software, and other proprietary rights.
  • Non-current Investments It includes other companies’ financial securities, including shares, debentures, and bonds.
  • Long-term loans This category includes loans and advances to subsidiary and associated enterprises.
  • Current Assets Current assets can be turned into cash in a year or less.
  • Current Investments Investments in mutual fund shares held for a short period are current investments.
  • Inventories As it pertains to raw materials, work-in-progress, and finished goods, it is known as inventory.
  • Trade Receivables The unpaid balance clients owe to the firm that sold the goods.
  • Cash equivalents consist of cash on hand and the company’s credit balances with banks and financial organisations.
  • Loans and advances for the short term This category includes loans and advances made to third parties like suppliers and employees.

Since each transaction affects the business’s assets or obligations, the balance sheet proforma may be considered accurate when it is prepared. It is typically scheduled on the last business day of the financial period.

Who is in charge of preparing the balance sheet?

The balance sheet may be prepared by various people based on the industry. The proprietor or a company bookkeeper may design the balance sheet for a small, privately-owned business. To prepare them, a mid-sized private firm may use an external accountant.

When it comes to public corporations are obligated to have their accounts audited by public accountants and maintain a far higher standard of accounting. These organisations’ balance sheets and other accounting records must be planned in compliance with GAAP and regularly filed with the Securities & Exchange Commission (SEC).

Example of a balance sheet format

There are numerous types of balance sheets, and they are commonly categorised as 

  • classified
  • common sized
  • comparative
  • vertically balance sheets. 

The original T-shaped or horizontal balance sheet format is as follows

Company Name     
Balance Sheet
For the Period Ended...........
LiabilitiesAmount in RsAmount in RsAssetsAmount in RsAmount in Rs
Capital And ReservesFixed Assets
Opening Capital BalanceXXXXLandXXXX
Reserves and SurplusXXXLess Depreciation(XX)XXXX
Less Drawings(XXX)
Capital BalanceXXXXBuildingXXXX
Less Depreciation(XX)XXXX
Secured Loans
Long term debtXXXInvestments
Other long term liabilitiesXXXLong term InvestmentsXXX
Unsecured LoansCurrent Assets, Loans and Advances
Cash credit payableXXXInventoryXXX
Cash and cash equivalentsXXX
Current LiabilitiesOther current assetsXXX
Trade PayablesXXX
Accrued InterestXXXPrepaid expensesXX
Other Current LiabilitiesXXXMiscellaneous expenditureXX
Total LiabilitiesXXXXTotal AssetsXXXX

The new balance sheet format is also referred to as the “vertical format balance sheet,” as it begins with equity and liabilities and concludes with assets.

Company Name   
Balance Sheet as at.................
ParticularsNote No.Figures as at the end of current reporting periodFigures 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
Company Name   
Balance Sheet as at.................
ParticularsNote No.Figures as at the end of current reporting periodFigures 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

Conclusion

The balance sheet is the primary source of information regarding the financial health of a business. As an investor, you need to read the balance sheet to make informed decisions.

It may appear complicated due to the abundance of jargon, yet these jargons are not nearly as sophisticated as they sound. Once you understand the meaning of the financial statements, analysing the balance sheet is quite simple.

FAQs on Balance Sheet Format

What is a balance sheet?

The balance sheet is an essential component of financial statements since it represents an organisation's current financial health.

How does a balance sheet of a corporation looks like?

Based on the Companies Act 2013, every business must prepare a balance sheet in the vertical format, with equity at the top, liabilities below, and assets at the bottom. Here in the new balance sheet format India, which features a new balance sheet header and a new horizontal balance sheet format.

What type of balance sheet do non-profit organisations use?

Non-profit organisations may continue to use the conventional T-shape Indian balance sheet format.

What information is used for the balance sheet?

The assets and liabilities of a business are represented in the balance sheet. This may comprise short-term assets, including cash and accounts receivable, and long-term resources like property, plant, and equipment, depending on the business. In the same way, its liabilities also include short-term liabilities like payables and wages paid, as well as long-term obligations including financial institutions and other debt obligations, among other things.