Chapter 2

Balance Sheet

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Accounting Concepts

• Accounting concepts are assumptions or

conditions.

• Need to be

– (a) useful (meaningful to users);

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– (a) useful (meaningful to users);

– (b) objective (supported by facts and data); and

– (c) feasible (practical and attainable) to be

accepted.

Accounting Concepts

• Entity

• Going Concern

• Money Measurement

• Cost

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• Cost

• Conservatism or Prudence

• Accounting Equivalence

• Verifiable and Objective Evidence

Balance Sheet

• A balance sheet describes the financial

position of an entity at any time. A balance

sheet dated 31 March implies a description of

the financial position of an entity ‘at the close

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the financial position of an entity ‘at the close

of business on 31 March’. Its formal name is

‘statement of a financial position’.

Balance Sheet

• A balance sheet is a detailed summary of the

basic accounting equation.

• A balance sheet is always prepared on the

date of closure of the accounting period. The

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date of closure of the accounting period. The

accounting period may be according to the

legal prescription (for example end of March

of each year) or may follow the accepted

practice by the firm (such as Diwali).

Marshalling

• According to the order of Permanency

• According to the order of Liquidity

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Statement of Retained Earnings

• A statement of changes in owners’ equity

specifically indicates information related to

what happened to the owners’ equity during

the time period under study. The owners of a

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the time period under study. The owners of a

firm might want to identify and trace out the

retained earnings of the firm during the

period under consideration.

Contents

• Grouped as

(i) current assets, (ii) fixed assets,

(iii) intangible assets,

(iv) deferred expenditure, (v) other assets,

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(iv) deferred expenditure, (v) other assets,

(vi) current liabilities,

(vii) non-current liabilities, (viii) net worth, and

(ix) investments.

Own V/s Owed Funds

• Proprietors’ Funds

• Loan Funds

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Terms

• Long Term Liabilities

• Provisions

• Reserves

• Estimated Liabilities

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• Estimated Liabilities

• Contingent Liabilities

• Contingent Assets

Terms

• Deferred Tax Assets and Liabilities

• Off Balance Sheet Financing

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