The main objective of accounting is to convey information. Thisobjective is achieved by different accounting reports prepared bya company. One of the most important reports is the BalanceSheet.Balance Sheet is concerned with reporting the financial position of a company at a particular point in time. The balance sheet showsthe assets and liabilities classified and arranged in a specificmanner.
Q. What is a Balance Sheet? What are the objectives of preparing Balance Sheet? Explain its characteristics.
After ascertaining the profit or loss of the business, thebusinessman wants to know the financial position of his business.For this purpose he prepares a statement of Assets and Liabilities,which is called Balance Sheet. It is prepared on a specified datebecause the figure shown in the Balance Sheet is true on thatdate only. The totals of the Assets and Liabilities should be equal.If it is not so, it means that there is some error.
The Committee on Terminology of American Institute of Certified Public Accountants has defined the balance sheetas
, "a list of balances in the assets and liability accounts. This listdepicts the position of assets and liabilities of a specific businessat a specific point of time."
Objectives of Balance Sheet:
The following are the objectives of preparing a balance sheet:
1.
Principal Objective:
The main purpose of preparingbalance sheet is to know the financial position of thebusiness at a particular date.
2.
Subsidiary Objectives:
Though the main aim is to knowthe exact financial position of the firm at a particular date,yet it serves other purpose as well.i.It gives information about the actual and real owner’sequity. Though the capital of the owner indicates
owner’s equity, yet some other liabilities are to beaccounted for against it also.ii.It helps the firm to make provisions against possiblefuture losses. A provision is made in the form of theReserves.
Characteristics of Balance Sheet:
The Balance Sheet as distinct from other financialstatements has the following characteristics:1.It is a statement and not an account. Although balancesheet is a part of the final accounts and prepared with thehelp of accounts, yet it is not an account but a statement.2.It is always prepared on a particular date, and thus showsthe position at that date and not for a period.
3.
It has no debit side and credit side. Nor the words ‘To’ and ‘By’ are used before the names of the accounts showntherein. The headings are Liabilities and Assets.4.It shows the financial position of the business concern.5.It shows what the firm owes to others and also what othersowe to the firm.The totals of Liabilities and Assets always are equal.
Q. Short note on uses of Balance Sheet.
The balance sheet reflects the financial position of the enterprise.It provides useful information to various users. The balance sheetis described as a snapshot of the financial position of a businessentity. The various groups interested in the company can drawuseful inferences from an analysis of the information contained inthe balance sheet. The balance sheet is also called the positionstatement.1.It shows the financial position of the business concern.2.It shows what the firm owes to others and also what othersowe to the firm.3.It shows the nature and value of the assets.
It also reflects the liquidity of a firm.
What information does it convey to an outsider?
Balance sheet is prepared with a view to measure the truefinancial position of a business concern at a particular point intime. It shows the financial position of a business in a systematicform. It is a screenshot of the financial position of the business.At one glance, the position of the business, at a particular pointof time, can be understood.The various groups interested in the company can draw usefulinferences from an analysis of the information contained in thebalance sheet.Shareholders usually have twin interests, an interest in receivinga regular income and an interest in the appreciation of theirinvestment in shares. Investment decisions of the prospectiveinvestors and dis-investment decisions of the existing investorsare influenced by the composition of assets and liabilities shownin the balance sheet.Similarly, other interested parties like regulatory anddevelopmental agencies of the government, consumer, andwelfare organizations can derive useful conclusions from a studyof the balance sheet about the working of the corporate sectorand its contribution to the national economy.
Classification of Items:Q. Explain the meaning of:
Owner’s EquityAssetsFixed AssetsAccrued LiabilitiesContingent LiabilityAccounts Receivables
Owner’s Equity
of 00
4 Balance Sheet 23.10.08
892 Reads
Info and Rating
| Category: | Uncategorized. |
| Rating: | |
| Upload Date: | 11/13/2009 |
| Copyright: | Attribution Non-commercial |
| Tags: |
Leave a Comment