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Balance Sheet

Balance Sheet is a statement which shows the financial position of the business on a particular day.

According to A. Palmer

“The Balance Sheet is a statement at a particular date showing on one side the trader’s property and possessions and on the other hand the liabilities”.

Thus we can say that

  • Balance sheet is a statement not an account.
  • It is prepared to show the financial position of the business.
  • It records all the assets and liabilities of the business.
  • It shows the financial position on a particular day not for a period of time.

Need and Importance of Preparing a Balance Sheet

A Balance Sheet serves the following purposes:

  • The true financial position of the business can be ascertained at a particular point of time.
  • Reveals the amount of assets owned by the business for example machinery, cash, debtors and so on.
  • Show the liabilities of the business such as total creditors, share capital etc.
  • To adjudge weather the firm is solvent or not.
  • Opening entries for the next financial year are based on the Balance Sheet of the previous year.

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