Financial Statements - I

permanent of all the assets. Out of debtors, bank and cash, debtors will take maximum time to convert back into cash. Bank is less liquid than cash. Cash is the most liquid of all the assets.

Similarly, on the liabilities side, the capital, being the most important source of finance will tend to remain in the business for a longer period than the long-term loan. Creditors being a liquid liability will be discharged in the near future. The balance sheet of Ankit in the order of permanence is shown in figure . (a).

Balance Sheet of Ankit as on March , (in order of permanence) Liabilities Assets Furniture Add Profit , Debtors , % Long-term loan Bank Creditors Cash , , Fig. . (a) : Items of balance sheet shown in the order of permanance In case of liquidity , the order is reversed. The information presented in this manner would enable the user to have a good idea about the life of the various accounts.

The assets account of the relatively permanent nature would continue in the business for a longer time whereas the less permanent or more liquid accounts will change their forms in the near future and are likely to become cash or cash equivalent. The balance sheet of Ankit in the order of liquidity is shown in figure . (b) Balance Sheet of Ankit as at March , (in order of liquidity) Liabilities Assets Creditors Cash % Long-term loan Bank Debtors , Add Profit , Furniture , , Fig. .

(b) : Items of balance sheet shown in the order of liquidity