Basic rules of Balance Sheet

A balance sheet is prepared to compare the expenses and profit of the business which is monthly quarterly and annually. The sheet comprises the liabilities, assets and equity shares. In very simple language it can be said that every financial transaction is recorded by debit and credit entries in the financial book.

Here are some of the basic things which will let you know the rules and the way of preparing the balance sheet. Check out:

  1. Assets
    The assets can be divided into 3 sections: Current Assets, Fixed Assets, and Intangible Assets.
    Current Assets
    This is again sub-divided into 3 sections:
    Cash: This is the most liquid form of current assets as it can be liquidated within a very short period. This includes funds, savings, etc.
    Inventory: Inventory comes in the category in which the companies purchase anything and sell it to the customer by making extra profit.
    Accounts Receivable: These are the amount received by the customers on time in terms of payment. This is also known as debtors.
  2. Fixed Assets
    Fixed assets include the things which are owned for long terms. This is again sub-divided into 3 parts:
    Equipment: This is the investment done by the owner for long term profit. But along with the time, its amount starts to depreciate.
    Vehicle: This is also fixed assets but along with time their amounts also depreciate.
    Land: Land is the fixed asset whose value does not depreciate for over many years.
  3. Intangible Assets 
    These are the goodwill earned by the company.
  4. Current Liability
    This includes Accounts Payable, Accrued Expenses, and Taxes Payable.
  5. Long term Liability 
    These are the debts that have not been paid for a long time.
  6. Share holder’s equity 
    These show the capital stock invested by the owner in the business.
    Final words
    The balance sheet is necessary for every business, be it small or large. It should be prepared under the basic rules of preparing the balance sheet.
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