# BALANCE SHEET

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Accounting equation

The basic accounting equation is :

Resources supplied by the owner = resources in the business

Resources supplied by the owner is called capital in accounting. Resources present in a business are called assets.

Capital = net assets or

• Capital= assets – liabilities

Balance sheet

It is a statement drawn up at the end of each period stating there in all the assets and liabilities of a business arranged in the customary order to exhibit the true and correct state of affairs of a business on a particular date.

Balance sheet is prepared from a trial balance after the balances of nominal accounts have been transferred to either trading account of profit and loss account. The remaining balances of personal or real accounts either show assets or liabilities.

The accounting equation is presented in a form of financial statement called balance sheet. The balance sheet shows the financial position of a business at a particular time.

There are 2 formats of balance sheet, however i’d only outline the easier one

Working capital : current assets – current liabilities

This capital represents the amount of resources a business has in a form that can be readily converted to cash.

Drawing are the resources the business owner withdraws for his personal use.

Fixed assets

A                                                       XXX

B                                                       XXX

C                                                       XXX

A                                                       XXX

B                                                       XXX

C                                                       XXX

Less current liabilities                      XXX

Working capital ( assets – current liabilities) :      YYY

Less long term liabilities                             XXX

Capital                                                       YYY

Or

Less net loss                                                XXX

And

Less drawings (If any)                      XXX

Consider the following example

Balance of k m traders at 31 dec 2011

Premises                        \$1500

Motor vehicle                           \$500

Cash at hand                            \$200

Cash in bank                            \$5000

Drawings                        \$50

Creditors                        \$550

Debtors                          \$300

Loan to be returned 2 years later \$500

Net profit                       \$5500

Balance sheet at 31 dec would be

Fixed assets

Premises                        \$1500

Motor vehicle                           \$500

Debtors                          \$300

Cash in bank                            \$5000

Cash at hand                            \$200     .                                            _______

\$7500   .

Less Current liabilities

Creditors                        \$550

_________

Working capital                                                                      \$6950     .

Less Long term liabilities        \$ 500                                                 ________

Capital                                                                          \$6450     .

Less drawings                          \$50                                                    ____________

\$11900