statement of assets and liabilities of a business enterprise and shows the financial position at a given date Informations contained in a balance sheet is true only on that date. The balance sheet is a part of the final account. But it is not an account, it is only a statement. In a balance sheet the totals of assets and liabilities are always equal.
It portrays the accounting equation. A balance sheet has to be prepared to know the financial position of the business, and the nature and values of its assets and liabilities. All the accounts which have not been closed till the preparation of the profit and loss account are shown in the balance sheet. Assets and liabilities shown in the balance sheet are marshalled in order of liquidity or in order of permanence.
Questions for Practice Short Answers . What are the objectives of preparing financial statements ? . What is the purpose of preparing trading and profit and loss account?
. Explain the concept of cost of goods sold? . What is a balance sheet.
What are its characteristics? . Distinguish between capital and revenue expenditure and state whether the following statements are items of capital or revenue expenditure : (a) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable. (b) Expenditure incurred to provide one more exit in a cinema hall in compliance with a government order.
(a) Registration fees paid at the time of purchase of a building (b) Expenditure incurred in the maintenance of a tea garden which will produce tea after four years. (c) Depreciation charged on a plant. (d) The expenditure incurred in erecting a platform on which a machine will be fixed. (e) Advertising expenditure, the benefits of which will last for four years.
. What is an operating profit? Long Answars . What are financial statements?
What information do they provide. . What are closing entries? Give four examples of closing entries.
. Discuss the need of preparing a balance sheet. . What is meant by Grouping