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Accounting

Balance Sheet Format

What is a Balance Sheet?

A balance sheet is a statement of a company that reports assets, liabilities, and equity at a specific time. A balance sheet can be prepared for any point in time but is most commonly prepared at the end of an accounting period, such as a month, quarter, or year. The balance sheet is one of the three primary financial statements, along with the income statement and the statement of cash flows. 

Here’s the equation:

Liability + Equity = Assets

Creditors and investors typically use the balance sheet to determine how effectively an entity can use its resources and evaluate the value of its investments.

Features of Balance Sheet:

The characteristics of a balance sheet are:

  • The document evaluates a company’s financial health and is typically prepared at the end of an accounting year.
  • The balance sheet provides a detailed look at the company’s financials on a given day. It lists the value of the company’s assets and any debts or other liabilities incurred by the business. This information can assess the company’s financial health and ability to meet its obligations.
  • It includes all accounts for assets and liabilities, but expenses and revenues are not disclosed.
  • The two sides of the sheet must always be the same. That is,

Asset = Liability + Equity

  • Additionally, it considers the current and personal accounts’ debit and credit balances. The company’s assets are defined as the debit balance in the real account. While the credit balance is known as the firm’s liability, it is recorded in the personal history.

Importance of Balance Sheet:

The following points prove the importance of balance sheets:

  • Authorities like creditors, investors, and other stakeholders use the balance sheet to comprehend an entity’s financial stability.
  • It helps to make decisions about new projects and unexpected expenses.
  • It’s a way of measuring the growth of an entity. The business owners can use this by comparing the balance sheet of different years.
  • Understanding the entity’s financial position and business performance benefits stakeholders.
  • A business sheet is essential when an owner plans to get a loan to start or expand its firm.
  • Examining the balance sheet makes it possible to determine whether the organisation is financing its operations with profit or debt.

What is the purpose of a Balance Sheet?

A balance sheet is one of a business’s most important financial statements that provides a snapshot of a company’s financial health and can be used to assess its solvency, liquidity, and financial stability. 

The balance sheet also contains essential information about a company’s assets, liabilities, and equity, and this information can assess a company’s financial position and performance over time.

How to prepare a Balance Sheet?

Here are the steps for creating a balance sheet:

  • Generate a trial balance: The trial balance report is essential to any accounting program. If you’re working in a manual mode, you can create a trial balance by transferring the ending balance of each general ledger account to a spreadsheet.
  • Construct the trial balance: The initial trial balance must be set up correctly to ensure that the balance sheet follows the appropriate accounting structure. All entries made to change the trial balance should be fully documented so that the auditors can understand why they were made.
  • Eliminate all revenue and expense accounts: Assets, liabilities, equity, losses, and gains are all included in the trial balance. Remove everything except the equity, liabilities, and assets in the trial balance. 
  • Figure out the remaining accounts. Total all trial balance accounts used to create the balance sheet at this stage. 

For example: Cash, Inventory, Accounts Receivable, Debt, Additional liabilities, Common shares, Retained profits, and Fixed assets are part of the list.

  • Validate and present in the required balance sheet format: The sum of all assets recorded on the balance sheet should be comparable to the liabilities and stockholders’ equity accounts.

What is Reserve in Balance Sheet:

A reserve is a sum of retained earnings that a company has set aside to bolster its financial position, pay off debt and credit, purchase fixed assets, expand the business, and fund other plans.

Reserve funds do not have any legal restrictions so the company can use them for any purpose. 

Consider the following scenario: Company XYZ needs to halt one of its products and issue refunds to customers.

A balance sheet reserve of Rs. 1,00,000 is established to ensure the business has enough funds to issue refunds. Customer refund requests cause Company XYZ to lower the budget. Generally, applications that have been registered but not yet paid are covered by the reserves. Liabilities are recorded for balance sheet reserves on the balance sheet.

Consolidation of Balance Sheet:

A consolidated balance sheet displays the assets and liabilities of a parent company and its subsidiaries in one report without identifying which item belongs to which company.

When a company buys a 50% controlling interest in another company or its business, it must release a consolidated financial statement.

Here’s a consolidation balance sheet example: A company has assets totaling Rs. 1,000,000 and purchases subsidiaries for Rs. 400,000 and Rs. 300,000, respectively. In this case, 1.7 million will be shown as an asset on the consolidated balance sheet.

How to Prepare a Consolidated Balance Sheet?

Here are the steps to create a consolidated balance sheet:

  • Assign the document a title, the subsidiary’s name, and the current date.
  • Make an asset, liability, and equity section in the left-hand column.
  • The sheet’s figures must match the worksheet’s consolidated trial balances.
  • Once you’ve incorporated the data from your worksheet, go over the combined balance sheet.
  • The total assets, liabilities, and equity should be similar to the parent company. Then, remove all the duplicate items and add subsidiaries.

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.