The balance sheet

AS INTRODUCED earlier, the balance sheet is a financial statement, prepared at the end of an accounting period, headed ‘as at …...(final date)’ of trading for the firm. The balance sheet is NOT a part of the double-entry system, but it lists balances according to identity – assets, capital and liabilities – to show the financial position.

WORKED EXAMPLE QUESTION 4.1

Trial balance to prepare the balance sheet:

SOLUTION WORKED EXAMPLE 4.1

Horizontal style:

FACTS TO REMEMBER:

1. Total for capital, each class of assets, i.e., fixed and current; classes of liabilities, i.e., long-term and current, should be clearly shown.

2. The word ‘account’ should not be written after each item.

3. The full details of the capital must be shown, i.e., if there are net profit/loss and/or drawings, they should be applied to the capital account.

4. It is always important to write the date, since the balance sheet is a position statement for a specific period.

SOLUTION WORKED EXAMPLE 4.1

Vertical style:

FACTS TO REMEMBER:

1. In the vertical balance sheet, the terms ‘fixed assets’, ‘current assets’, ‘current liabilities’ and ‘capital’ mean the same as a horizontal balance sheet.

2. The total of current liabilities should be deducted from total current assets.

3. Long-term liabilities should be deducted from total fixed assets + current assets.

This is all we have time for this week, but always bear in mind that you must get up each morning with renewed determination if you want to go to bed with full satisfaction. Never let what you cannot do stand in the way of what you can.