Balance Sheet may be defined as " A statement which sets out the assets and liabilities of a firm or an institution as at a particular date ." Having prepared the Trading and Profit and Loss Account , Balance Sheet is prepared . It is a statement prepared to show the financial position of the business on a particular date . The financial position of a business is shown by its assets and liabilities on given date . Balance Sheet is prepared from the assets , liabilities and Capital account , Balance Sheet shows the assets owned by the enterprise and the claims of the creditors and owners against these assets .
The purpose of preparing the Balance Sheet is ascertaining the financial position of a business ,i.e., to know what the business owes and what it owns at a certain date . This is why the Balance Sheet has the heading : Balance sheet as at ... as against the heading of Trading Account and Profit and Loss Account which usually is for a year .
Balance Sheet is true only at a particular point of time . Since even a single transaction will make a difference to some of the assets or liabilities .
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Need : Balance Sheet is prepared with a view to true financial position of a business at a particular point of time . It is a method to show the financial position of a business in a systematic and standards form . Through it the position of the business , at a particular point of time, can be understood at a glance , Just as a doctor will fell the pulse of a person and known whether he is enjoying good health or not , in the same manner by looking at a Balance Sheet one can know wheather the firm is solvent or not . If the assets exceed liabilities , it is solvent ; in the other case , it would be insolvent .
Debit and credit balances ot those Ledger accounts not closed by transfer to Trading and Profit and Loss Account are shown in the Balance Sheet . The Debit balance are shown on the ' Assets ' side and Credit balance are shown in the ' liabilities ' side
Specimen of Balance Sheet
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