Notes on preparing Balance Sheet

4:43 AM imran ali

  • All the real and personal accounts having debit balances (given in debit side of trial balances) should be shown on the asset side of balance sheet.
  • All the real and personal accounts having credit balances (given in credit side of trial balances) should be shown on the liability side of balance sheet.
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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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