What is Balance Sheet? definition, characteristi... about:reader?url=https://businessjargons.com/...

businessjargons.com

What is Balance Sheet? definition,

characteristics and format - Business Jargons

5-6 minutes

Definition: A Balance Sheet refers to the position statement,

which lists out the balances of the assets, liabilities and owner’s
equity, i.e. capital, of an enterprise at a specified date. While the
assets show the resources owned by the company, liabilities and
capital exhibits the funding of resources.

Characteristics of Balance Sheet

The preparation of Balance Sheet is not for a period, but at a
particular date.
The preparation of the balance sheet is possible only when
profit and loss account for the period is prepared because it
reflects the financial position of the company adequately.
That is why the Profit & Loss Account, Balance Sheet and
Cash flow Statement are collectively called as Final Accounts.
The totals of the two sides, i.e. assets and liabilities of the
balance sheet must tally as Assets = Liabilities + Capital. If
not so, then there must be an error.
The balance sheet reflects the nature and value of assets and
liabilities and the position of capital on a given date.

It can be prepared, taking into account the debit and credit

balances of the real and personal accounts, as per trial balance.
The real account’s debit balance is an indicator of the asset of the
firm, whereas the credit balance of the personal account is an
indicator of liability.

Format of Balance Sheet

1 of 4 21/02/19, 6:48 pm
What is Balance Sheet? definition, characteristi... about:reader?url=https://businessjargons.com/...

Equity and Liabilities: It indicates what the firm ‘owes’ to

others.
Shareholder’s Funds: It shows the shareholder’s
contribution to the firm in any form.
Share Capital: The portion of the firm’s capital, raised
from the issue of shares. It encompasses equity share
capital and preference share capital.
Reserves and Surplus: It covers retained earnings and
shares premium. It encompasses capital reserves,
debenture redemption reserves, general reserve,
revaluation reserve and surplus.

2 of 4 21/02/19, 6:48 pm
What is Balance Sheet? definition, characteristi... about:reader?url=https://businessjargons.com/...

Non-Current Liabilities: The liabilities which can be settled

after one year from the date of reporting, is called non-
current liabilities.
Long-term Borrowings: Term loans from banks and
financial institutions which have a tenor of more than
a year are called long-term borrowings.
Deferred tax liabilities: A deferred tax liability arises
when the amount allowed for tax purposes exceeds
the charge in the financial statements.
Long-term provisions: Provisions for employee
benefits comes under long-term provisions. It includes
provident fund, leaves encashment, gratuity,
superannuation fund, etc.

Current Liabilities: These are short-term liabilities which

need to be settled within a period of one year or less.
Short-term Borrowings: The borrowings that are to be
repaid within one year is called short-term borrowings
and includes commercial paper, working capital loans,
corporate deposits, etc.
Trade Payables: The amount due to suppliers from
whom goods are bought on credit are called trade
payables. It includes sundry creditors and bills
payables.
Short-term provisions: It refers to the provisions made
by the firm for dividend and taxes.

Assets: These are the resources owned by the firm, that

provide future economic benefits.
Non-current Assets: The assets which remain with the
entity for more than a year are non-current assets.
Fixed Assets: Assets bought by the company for long-
term use, and are not converted into cash quickly are
called fixed assets.
Tangible Assets: The assets that are used in their
physical form are called tangible assets. It
includes land, building, vehicles, furniture, plant,

3 of 4 21/02/19, 6:48 pm
What is Balance Sheet? definition, characteristi... about:reader?url=https://businessjargons.com/...

etc.
Intangible Assets: Assets with no physical shape
and structure are called intangible assets, such as
copyright, patent, trademark, design, software, etc.

Non-current Investments: It consists of financial

securities of other companies such as shares,
debentures, bonds and so forth.
Long-term loans and advances: Loans and advances
made to subsidiary companies, associate companies,
comes under this category.

Current Assets: The assets that can be converted into

cash within a period of one year or less are current assets.
Current Investments: The holdings in shares of mutual
funds, usually for a short term are called current
investments.
Inventories: It refers to the stock of goods in various
forms such as raw material, work-in-process and
finished items.
Trade Receivables: The amount owed by the
customers to the firm, to whom goods are sold, but
not yet paid.
Cash and cash equivalents: It includes cash owned by
the company and the credit balance with the bank and
financial institutions.
Short-term loans and advances: Loans and advances
provided to parties such as suppliers and employees
are covered in this category.

As each and every transaction affects assets or liabilities of the

business, that is why, the balance sheet can be regarded as true
only at that point in time, when it is prepared. And due to this very
reason, “as at” is written with the date. Usually, it is prepared on
the last day of the accounting period.

4 of 4 21/02/19, 6:48 pm