Balance Sheet Components

Liabilities

Items

Description

It indicates the initial amount the owner or owners of the business contributed. The business entity concept states that the owners and business are distinct entities, and thus, any contribution by owners by way of capital is a liability.

Reserves and Surplus Account:

The business is a going concern and will keep making profit or loss year by year. Cumulation of these profit or loss figures (called surpluses) will keep on increasing till these are used or distributed.

Long term or non-current liabilities account:

These are obligations that are to be settled over a longer period of time say 5 - 10 years. These sums are raised by way of loans from banks and financial institutions. Such funds borrowed are to be repaid in instalments during the tenure of the loan as agreed.

Short term or current liabilities account:

Liability shall be classified as current when it satisfies any of the following:

• These are expected to be settled in the organisation’s normal Operating Cycle.
• These are held primarily for the purpose of being traded.
• The current liabilities are due to be settled within 12 months after the Reporting Date, or
• A business entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.
• Includes items such as Sundry Creditors, Outstanding expenses, Bills Payable, Bank Overdrafts etc.,

Items

Description

Fixed Assets:

These assets represent the facilities or resources owned by the business for a longer period of time. The primitive purpose of these resources is not to buy and sell them, but to use them for future earnings. The profits from the use of these assets are spread over a very long period. The assets could be tangible form such as buildings, machinery, vehicles, computers etc., whereas some could be in intangible form viz. patents, trademarks, goodwill etc.

Investments:

These are the sums that are invested outside the business on a temporary basis. The purpose of parking the money in these is to earn a reasonable return instead of keeping them idle. These are assets shown separately in the balance sheet.

Current Assets:

To classify the asset as current, it should satisfy any one of the following conditions:

• It is expected to be realised in, or is intended for sale or consumption in the organisation’s normal Operating Cycle,
• It is held basically for the purpose of being traded,
• It is due to be realised within 12 months after the Reporting Date, or
• It is equivalent to cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the Reporting Date.
• Includes items such as stocks, sundry debtors, bills receivable, cash in hand, cash at bank etc., and also includes prepaid expenses.