Department of Technical Education

Andhra Pradesh
Name N.sambaiah
Designation Head of Section
Branch DCCP
Instititute Suvr & SR Govt.Polytechnic
for Women,Ethamukkala.

Year I year
Subject Accountancy –I
Subject code CCP-102
Topic Final Accounts
Duration 50 minutes
Sub-topic Understanding Balance Sheet
Teaching a aids: PPT, Animations
CCP102.130 1
 OBJECTIVES OF THE LESSON

On completion of the period, you would be able to

 Understand nature of the Balance Sheet and
important items in the Balance Sheet

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 What is a Balance Sheet
 It is a statement summarizing the financial position of a
business on a given date
 Balance Sheet has two sides – the left hand side and right
hand side. The left hand side is known as Liabilities SIDE
and the right hand side is known as ASSETS SIDE

AMOUNT AMOUNT
LIABILITIES Rs Ps ASSETS Rs Ps

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 Balance sheet (contd)

 Right Hand side: All the assets including cash, income

earned but not received and prepaid expenses
 Left Hand side: All the liabilities including capital, reserves,
outstanding expenses and income received in
advance
 It is prepared on a certain date and for a period
 Total of the assets must be equal to the total of the liabilities
 Balance Sheet is prepared only after the preparation of
trading account and profit and loss account
 All the accounts which have not been closed by transfer to
either trading account or profit and loss account, must appear
in the Balance sheet

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 Importance of Balance Sheet

 It shows the financial position of the business on

the date of preparation
 It shows the financial strength of the business, by
showing the surplus value of assets i.e. owner’
capital
 An outsider can interpret the profit earning capacity
of the business over a period of time with the help
of Balance Sheet
 It shows whether the firm is growing steadily or
with fluctuations
 It guides the prospective investors for taking
decisions of investing in the ventures
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What are the ways for preparation of
Balance Sheet?

Balance Sheet is prepared in two ways

1. in order of liquidity
2. In order of permanence

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Balance Sheet in the order of
liquidity
 Generally sole trading firms and partnership
firms follow the order of liquidity
 The principle followed is that those assets
which can be easily converted into cash come
first than those assets which may take more
time to convert them into cash
 Liabilities are shown in the order in which
they are payable, the most pressing liability is
placed first and follows the less pressing
liability

CCP102.130 7
Proforma of Balance Sheet on the
basis of liquidity
Balance sheet as on…………….

Liabilities assets

Band overdraft Cash in hand

Bills payable Cash at bank
Loans Bills receivable
Sundry creditors Investments
Outstanding expenses Sundry debtors
Reserves Stock-in-trade
Capital Furniture and fittings
Plant and machinery
Buildings
Goodwill

Total Total
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 Balance Sheet under the order of
permanence

The principle followed under this system is: -

 Those assets which are of permanent nature come
first
 Liabilities which are not urgent for payment comes
first

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Form of Balance Sheet under
permanence order
Balance Sheet as on ……………………….

Liabilities Assets
capital Goodwill
Reserves & surplus Buildings
Outstanding expenses Plant & machinery
Loans Furniture and fixtures
Sundry creditors Loose tools
Bills payable Sundry debtors
Bank overdraft Bills receivable
Cash at bank
Cash at hand
Total Total
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Summary
 There are two ways of preparing balance sheet
namely
1. in the order of liquidity
2. in the order of permanence

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Quiz

1. Right hand side of the balance sheet show:

A) Assets
B) Liabilities
C) Both A & B
D) None of the above
6. Left hand side of the balance sheet shows
A) Assets
B) Liabilities
C) Both A & B
D) None of the above
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 Quiz (contd..)

3. B/S is prepared in order of

b) Permanence

c) Liquidity

d) Both (a) & (b)

e) None of above

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 Frequently asked questions
1. What is the importance of balance sheet?
2. How may ways of preparing the balance sheet
and what are they?
3. List the assets and liabilities order under the order
of liquidity?
4. List the assets and liabilities order under the order
of permanence.
5. How the balance sheet is prepared?

CCP102.130 14