How to Prepare A Balance Sheet: Sample Balance Sheet

What is a Balance Sheet?

A Balance Sheet is one of the most important documents of any company. It is a summary of all the company's accounts and activities in monetary terms. It is a statement of an Organisation's assets and liabilities. It gives a complete picture of the financial position as on a particular date of the company in question, in a nutshell. 

Importance of Balance Sheet

Balance sheets are important for the many uses they provide to different sections of people. They are mandatory under the Company Law for any business organization.

Here are some of the advantages derived from Balance Sheets:

• Balance Sheets are used by governments and Company Law Boards to determine the performance and activities of companies and business entities for the purpose of Income Tax assessment, Corporate Tax, and other statutory compliance requirements. 
• Investors use information from Balance Sheets as a guide while investing their resources in the company. As the balance sheets are certified by licensed Chartered Accountants, they are deemed reliable sources in projecting a true picture of the company's financial position. 
• Owners and Shareholders use the balance sheets to understand the status of their company and to take authoritative decisions on management issues and running of the company.
• Even staff and workers should know the status and progress of their company to seek increments, promotions, and bonus payments. Even fresh applicants for a job should assess the company's financial status before applying for a job. 
• In the legal field, also. Balance sheets are used to file cases and seek compensation from the company. 

How to Prepare Balance Sheets

Balance Sheets are prepared using the Trial Balance and Profit and Loss Statement of the company.

• A simple Balance Sheet consists of two columns, just like the Trial Balance and Profit and Loss account.
• On your right side, you will show all the assets like Fixed Assets, Current Assets, Cash & Bank Balances, and Investments, etc.
• On the left side of the balance sheet, you will show all your liabilities such as Capital, long-term liabilities, current liabilities, etc.
• The order followed while showing assets, as to which item should appear first and which at the last, is based on their liquidity or non-liquidity nature. Hard assets which are not easily saleable are generally shown first, followed by the next hard item.
• For Liabilities, the order followed is based on the obligation of the liability to be met first while paying out.

But in my example below, I am providing a sample balance sheet in a simple format that I used to prepare for my company in a two-column statement.

Balance Sheet of XYZ Company as on 31^st March 2014

Liabilities	Amount ($)	Assets	Amount ($)
Authorised Capital CP shares 200000 Ordinary    50000 Total         250000 Issued & Paid-Up CP shares 180000 Ordinary     45000		Fixed Assets 200000
		Less: Depreciation                                                         30000	170000
		Inventories	80000
		Sundry Debtors	15000
		Prepaid expenses	5000
		Investments	5000
		Bank Balance	10000
Total Issued & Paid	225000	Cash Balance	2000
Long-term Liabilities	15000
Current Liabilities	30000
Cumulative Profit	17000
TOTAL	287000	TOTAL	287000

The above is only a sample for easy understanding of Balance Sheet preparation. All figures are to be taken from your Profit and Loss Statement and Trial Balance, as already mentioned.

You must attach to this Balance Sheet all the quantitative information and the details of each group of account shown here in the above statement. These sheets are to be enclosed as Annexures to the Balance Sheet.

Please Note:

Different countries follow different styles in presenting balance sheets. Some prefer a single-column statement that starts with assets, then proceeds to liabilities and capital. The asset total is inserted in the middle, and the liabilities total at the end. In any case, the totals for assets and liabilities will match. That is why it is known as a Balance Sheet.

Even in the same country, different companies can present their figures in different ways. For example, cash and bank balances and current assets may come first, followed by fixed assets. Current liabilities may come first, then long-term liabilities, and then share capital.