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Features/Characteristics of Balance Sheet

Balance sheet is the position statement which shows the position of assets and liabilities. It has got the following special features:

1.                          Balance sheet is a statement. Though Balance sheet is an integral part of double entry system, but it is not an account. It has got the balance of certain ledger accounts. The balance of all ledger accounts are not shown in it.

2.                          Prepared on a specified date. Balance Sheet is prepared on a specific date, i.e., at the end of accounting period. It is common practice and also legal requirement to prepare Balance. Sheet together with Trading and profit and loss account at the end of the accounting year. It may be prepared after every six months if the proprietors so desire. Accounting year may consist of calendar year or assessment year or its own accounting year. Companies are required to adopt assessment year (April 1 to 31st March) as per legal requirement. Sole proprietorship and partnership can adopt accounting year which suits them, i.e., Diwali to Diwali or Dussehra to Dussehra or assessment or calendar year.

3.                          1t is a statement of assets and liabilities. Though the Balance sheet has debit and credit balance but its sides are named as assets and liabilities. The left hand side is a liability representing credit balance. Right hand side is assets representing debit balances.

4.                          Knowledge about the nature of assets and liabilities. Balance sheet categories assets as liquid assets, current assets, fixed assets and fictitious assets. Knowledge of liabilities as current liabilities, fixed liabilities and reserve and funds can be gained from Balance sheet.

5.                          Knowledge of financial position. Balance sheet depicts true financial position of the business. The position can be ascertained by study of the Balance sheet. We can calculate short term and long term financial ratios, proprietary and other ratios to have the knowledge of the financial soundness of the business.

6.                          Assets and liabilities tally each other. The total of assets must be equal to liabilities. According to accounting equation, assets are always equal to creditors, and proprietor’s equity. If the total of assets and liabilities are not equal, there is likely to be certain mistake.

Need and Purpose of Balance Sheet

Balance sheet is a vital part of final account. It has to be compulsorily prepared as per legal provisions. Objects of the Balance sheet have been summarized as under :

Main objectives of Balance Sheet

The main object of Balance sheet is to assess the financial position of the firm. It is the list of assets and liabilities of the firm on a specific date. The short term and long term financial position of the firm can be obtained from the analysis of the Balance sheet.

Balance sheet is rightly said to be a mirror reflecting the true value of assets and liabilities on particular date.