Final Accounts Balance sheet Balance sheet is a
Final Accounts
Balance sheet • Balance sheet is a statement of assets and liabilities on a given date. It is a sheet of balances of those ledger accounts which have not been closed till the preparation of trading and profit ans loss account. • In this we will show all real and personal accounts • It is prepared on a particular point of time and not for a particular period.
Why prepared? • to ascertain nature and value of assets of business • to ascertain nature and amount of liabilities of business • to find out financial solvency of business.
Classification of assets and liabilities • http: //www. yourarticlelibrary. com/accounting/balancesheet/classification-of-assets-and-liabilities-in-balancesheet/50280 • Do read this topic through this link so to get better understanding of it
Grouping of assets and liabilities • It means putting together items of common nature under a common heading. For example under the heading of trade creditors the balances of all suppliers from whom goods are bought on credit will be shown.
Marshalling of assets and liabilities • it refers to the order in which various assets and liabilities are shown in balance sheet. Order of Liquidity Order of permanence
Order of liquidity • Order of liquidity is the presentation of assets in the balance sheet in the order of the amount of time it would usually take to convert them into cash. Thus, cash is always presented first, followed by marketable securities, then receivables, then inventory, and then fixed assets. Goodwill is listed last. • Liabilities are arranged in their order of urgency of payment i. e. most urgent payment to be made shown first(e. g. short term creditors). The least urgent payment will be shown at last(e. g. long term creditors)
Order of Permanence • Assets are arranged in their order of their permanence i. e. least liquid asset is shown first(e. g. goodwill) and most liquid asset will be shown at last(e. g. cash) • The least urgent payment to be made shown first(e. g. owners) and most urgent payment to be made shown last(e. g. short term creditors).
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