Liability side of Balance Sheet

4:41 AM imran ali

Capital:
It is the amount of money invested by the businessman into the business. Net profit earned increases the amount of capital whereas net loss and drawing decrease the capital.

Long term liabilities:
Those liabilities which are spend after long period say after 5 or 10 years are called long term liabilities. Examples of such liabilities are:
  • Bank loan
  • Debentures
  • Bonds
  • Mortgage
Current liabilities:
These liabilities are to be repaid within a short period usually within an accounting year such as;
  • Creditors
  • Bills payable
  • Bank overdraft
  • Outstanding expenses
  • Provision for dividend and taxation
  • Advance income
  • Short term loan.
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Fictitious Assets

4:40 AM imran ali

Such assets are nominal in nature and do not have real value. They are either the past accumulated losses or expenses incurred once in the life of a business. Some examples are,
  • Preliminary expenses
  • Discount or loss on issue of shares and debentures
  • Deferred revenue expenditure e.g. advertisement expenses
  • Brokerage and share underwriting commission
  • Debit balance of profit and loss account.
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Current Assets

4:36 AM imran ali


Those assets which can be converted into cash through the normal course of business within a short time ordinarily in an accounting year. Some examples are:
  • Cash in hand
  • Cash at bank
  • Bills receivables
  • Debtors
  • Closing stock
  • Prepaid expenses
  • Short term investment
  • Accrued income etc.
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Fixed assets

4:34 AM imran ali

Those assets which are of a relatively permanent nature used in operation of business. They are for earning income but not for resale like;
  • Land and building
  • Plant and machinery
  • Furniture and fixture
  • Lease holds and freehold
  • Motor vehicles
  • Goodwill
  • Patent
  • Trademark etc.

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Importance of Balance Sheet

4:33 AM imran ali

  1. It shows the financial position of the organization for a certain period by showing details about capital, assets and liabilities.
  2. It helps to test the liquidity position of the organization by providing necessary infomation for the calculation of liquidity ratios.
  3. It also helps to know solvency position i.e., long term loan paying ability of a firm.
  4. It shows capital structure i.e. the position of owner's capital, shareholder's capital and borrowed capital of a firm.

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