The following are the items that appeared on the Liabilities side of the Balance Sheet.
Items appearing on the Liabilities Side of the Balance Sheet
Capital: This is the amount invested by the proprietor in the business to carry out the business activities. Those items which increase the balance of capital such as net profit, fresh capital introduced, and interest on capital is added to the capital. On the other hand, the items that reduce the balance of capital such as net loss, drawings made, interest on drawings, income tax paid, life insurance premium, etc. are deducted from this capital.
Fixed or Non-current Liabilities: These are the long-term liabilities of a business that are to be repaid by the business after a period of one year. For example, long-term loans, loans from banks, mortgages, etc.
Reserves and Provisions: Reserves and provisions are the amounts that are kept aside to meet future uncertainties and losses. For example, general reserve, reserve fund, provision for tax, etc.
Current Liabilities: These are the short-term liabilities of a business that are to be repaid by the business within a period of one year. For example, creditors, bills payable, outstanding expenses, etc.
Contingent Liabilities: These are the liabilities that depend on the happening of some certain event. These are not the actual liabilities but may become the liability in the future on the happening of some specific event. For example, liability in respect of bill discounted is a contingent liability. This is because, if a sole proprietor discounts a bill with the bank and on the actual date of payment, the acceptor fails to pay the amount, then, the sole proprietor will become liable to the bank. These liabilities are neither accounted for nor shown in the Balance Sheet but are shown as a footnote below the Balance Sheet.
Trading Account is an account that is prepared to ascertain the trading results of a firm in form of gross profit earned or gross loss incurred during an accounting period.
Users of Financial Statements
The users of financial statements can be broadly classified as Internal Users and External Users. Internal Users are the users who have direct access to the financial statements
Financial statements reveal the profitability and financial position of a business at the end of the accounting year. It provides financial information to various accounting users that
What is a Promissory Note?
A promissory note is an unconditional promise in writing given by the buyer (or creditor) to the seller (or debtor) to pay the amount of money specified therein to the seller or to the order of seller or to bearer.