Page 151 - Account 10

Balance Sheet

9. Introduction
Final Accounts have two basic objectives viz. (a) ascertainment of profit or loss, and
(b) measurement of the true financial position of a business concern, at a given date.
The first objective is fulfilled by preparing trading A/c and profit and loss A/c and the
second, by preparing the balance sheet.
The determinants of the profit or loss of a business concern are its incomes, gains and
expenses and losses of revenue nature, which are entered either in trading A/c or in profit
and loss A/c. Similarly, the determinants of the financial position of a concern are the
owners’ capital, liabilities and assets. A balance sheet is a statement of assets, capital and
liabilities of a business enterprise at a given date. It depicts the true financial position of
a concern at the close of each accounting year. Thus, a balance sheet may be defined as a
statement of assets, capital and liabilities of a concern, prepared at a particular given date
in order to measure the true financial position of the concern on that date.
A balance sheet is prepared in the form of statement by mentioning all capital and
liabilities on one side and all the assets on the other. Thus, it does not have debit and
credit sides like other books of accounts but instead it has two sides; left hand side and
right hand side. Capital and liabilities are mentioned in the left hand side and assets, in
the right hand side. The totals of left-hand side and right-hand side should be equal if
the accounting information is numerically accurate. That means ‘Capital + Liabilities
=Assets’ is the fundamental of balance sheet. Every business transaction is entered in the
original entry and concluded in the balance sheet. A balance sheet is prepared at the last
step after preparing trading A/c and profit and loss A/c and then it is the final step of
final accounts.
According to Palmer, “Balance sheet is a statement at a particular date showing on one side the
trader’s property and on the other side, the liabilities.”
According to O.P. Gupta, “Balance sheet is a mirror, which reflects the true position of assets
and liabilities of a business on a particular date.”
From the above definition, it may be concluded that balance sheet is a statement which is
prepared to know about the financial position of an organization at the end of accounting
period. It is not an account rather a financial statement. It presents the liabilities and the
assets either in order of performance or in order of liquidity.

Key Point A balance sheet is a statement of assets, capital and liabilities prepared
at the last step of final account to ascertain the financial position of the
concerned.

10. Objectives of Balance Sheet

There are many objectives of a balance sheet. The important objectives are mentioned
below:
i. To measure the true financial position of a firm by presenting the true value of assets,
capital and liabilities at a certain given date.

150 Aakar’s Office Practice and Accountancy - 10 Final Accounts 151