Balance sheet
Balance sheet is a financial statement of assets and liabilities of a business firm on a particular period of time.
It presents liabilities and assets on the left and right side of its body either in order of performance or due to liquidity.
In short, balance sheet is a financial statement that shows, how much a firm owes to others and how much others owes to firm and that determine the future of any firms.
Purpose of preparing Balance Sheet
To present actual financial position of a firm in a particular period of time.
To know the actual amount of sundry debtors and creditors.
To show nature, value, and position of all assets and liabilities of a firm.
To obtain loan and advances from banks and financial institutions by reflecting actual financial position of a firm.
To provide detail information about the liquidity position of a firm.
To calculate financial ratios to show the relation between the transactions.
To provide detail information about the financial position of a firm to its stakeholders.
To help to determine the actual value of the business firm at the time of sale or liquidation.
Difficulties arises while preparing Balance Sheet
To present accurate financial future of a firm of a business firm due to omitting of transactions.
To visualized financial position of a firm due to incorrect classification of assets and liabilities.
To perfectly valued the financial transactions due the transposition error.
Inaccurate value of inventory due to forgetting to record inventory changes.
To approximate the current value of assets and liabilities as it was recorded in its original price.
To present accurate information on balance sheet due error of omission.
To determine the exact value of assets as work In progress is not recognized due to cash basis accounting concept.
To adjust off balance sheet transactions while preparing balance sheet.
To balanced assets and liabilities due to the information contained within financial documents is incorrect.
Balance sheet is another important financial statement that provides information to make appropriate decisions regarding a financial future of a firm but while preparing such statement, some difficulties arises due to accounting errors which can be minimize by reconcile the financial information contained within balance sheet with the original financial documents
