Balance sheet is a statement prepared with a view to measure the financial position of a business on a certain fixed date. The financial position of a concern is indicated by its assets on a given date and its liabilities on that date. Excess of assets over liabilities represents the capital and is indicative of the financial soundness of a company. A balance sheet is also described as a “Statement showing the sources and application of capital” it is a statement and not an account and prepared from real and personal accounts. The left hand side of the balance sheet may be viewed as a description of the sources from which the business has obtained the capital with which currently operates and right hand side as a description of the form in which the that capital is invested on a specified date.
On the left hand side of the balance sheet the several liabilities items describe how much capital was obtained from the trade creditors, from banks, from bill holders and other outside parties. The owner equity section shows the capital supplied by the Owner. And on the other hand in the right side of the balance sheet various Assets are shown which is how much invested in building, stock, Debtors, cash at bank and So on.
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Why prepare Profit and Loss Statement Balance sheet gives information relating
1. The nature and value of assets2. The nature and extent of liabilities3. Whether the firm is solvent4. Whether the firm is over trading
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