Meaning of Balance Sheet

Meaning of Balance Sheet: The Balance Sheet is the last financial statement that is prepared by any organization. This statement helps to ascertain the true financial position of an enterprise at the end of an accounting period. It is a statement that is prepared to ascertain the values of assets and liabilities of a business on a particular date. In other words, a Balance Sheet can be defined as a financial status report of an organization that imparts information related to various assets and liabilities of an organization at the closing of an accounting period. The preparation of the Balance Sheet is compulsory as it is an integral part of financial statements. It is prepared with the help of real and personal accounts balances. It reveals the solvency and liquidity position of a firm on a particular date. An important point to be noted here is that the Balance Sheet is a statement and not an account.

Though similar to an account it also has two sides named Assets and Liabilities, but it is not prepared by following the accounting rule of debit and credit. The assets of a firm are shown on the right-hand side under the head “Assets” and liabilities are shown on the left-hand side under the head “Liabilities” of the Balance Sheet. Liabilities consist of the owner’s / proprietor’s funds and creditors. It should be noted that the sum total of the assets side is always equal to the sum total of its liabilities side. Thus, a Balance Sheet can be defined as a statement depicting a true and fair view of a firm’s financial position at the end of an accounting period.

Meaning of Balance Sheet in Freeman’s Words:

In the words of Freeman, “A Balance Sheet is an item-wise list of assets, liabilities, and proprietorship of a business at a certain date”. According to Francis R. Stead, “A Balance Sheet is a screen picture of the financial position of a going business at a certain moment”.

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