Balance sheet - Part 3 T

HIS WEEK, we will continue to focus on the balance sheet. We have already established that it is a financial statement that expresses the financial position of a firm. It is always shown ‘as at’ a given date. The two formats used in presenting the balance sheet are: i. Horizontal ii. Vertical

Both formats are classified, meaning assets and liabilities are grouped separately and further subdivided into: 1. Fixed and current assets. 2. Current and long-term liabilities.

It is important to note that capital is shown separately on the side with liabilities. Assets and liabilities are listed in either: ¯ Order of permanence OR ¯ Order of liquidity a. Order of permanence Whenever assets are listed in order of permanence, the least liquid asset is listed first. In other words, the one hardest to be converted into cash is listed first. b. Order of liquidity Whenever assets are listed in order of liquidity, the most liquid asset is listed first. That is, cash should be listed first in the current assets section. It is customary that one set of order is usually followed for both sets of accountings. 1. Below is a balance sheet in which assets are listed in order of permanence Always remember: Working capital = current assets - current liabilities Net assets = Fixed assets +current assets - current liabilities - long term liabilities Capital = Net assets Capital at close = capital at start + net profit (or less net loss) - drawings Below is a horizontal-style balance sheet with assets listed in order of liquidity: