Constructing a balance sheet, Accounting Standards

Comprising examined the conceptual origin of the balance sheet we will here try to study the balance sheet by itself. We have observed that every transaction influences the financial position. As this is not feasible to draw up a balance sheet after all transaction, this is prepared at the end of a given period, generally, a year. Such period is considered to as accounting period or fiscal year or financial year. Such period as a convention has turn into one calendar year, although; there is no accounting justification for this.

Balance sheet preparation is the arrangement of the assets and liabilities of that firm in a correct or in a systematic manner. The balance sheet as prepared in the end of the accounting period demonstrates the year end status of all of the assets of the firm and the different claims on these assets. We imply that the balance sheet demonstrates the year-end balance in the asset, responsibility and capital accounts. This may be clarified that there are two conventions of preparing the Balance sheet. The English and the American, as per to the American convention, assets are demonstrated on the left hand side and the liabilities and the equity of owner on the right hand side. The English convention is just the reverse that is: assets are demonstrated on the right hand side of the Balance Sheet and the liabilities and the owner's equity on the left hand side. In India, usually the English conventions are followed. The format specified below is the format of the balance sheet in the sequence of liquidity, that is, ease of conversion of the assets in cash. The additional liquid assets are demonstrated first and then the less liquid one emerge on the proforma. Likewise, on the liabilities side, current liabilities in order of payment are demonstrated first, then fixed or long term and finally, the capital of the proprietor.

Balance Sheet as on             



Current Liabilities


Bills Payable Bank Overdraft Outstanding Expenses

Income Received in Advance


Fixed Liabilities

Loan Mortgage Capital




Current Assets Cash in Hand Cash at Bank Stock-in-Trade Debtors

Bills Receivable

Prepaid Expenses

Fixed Assets

Furniture and Fixtures

Plant Machinery








The assets of a business can also be demonstrated in the balance sheet in order of permanence, that is, in order of the desire to continue them in use.

Posted Date: 4/3/2013 6:29:14 AM | Location : United States

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