This is not an account but it is rather a statement that shows the state of affairs of a business in a given particular period of time. It shows the financial position of a business at a particular period of time. It is a classified summary-of both the debit, and the credit balance existing in the ledger after the preparation of profit and loss account.
It contains the following as thus:
ASSETS
These are all the possessions and properties of a business. These assets are of two forms thus:
Fixed Assets
These are assets’ that have been acquired and they are also fixed in the business for the main purpose of creating production capacity. Examples are motor van, plant and machinery, land and building, fixtures and fittings etc.
Current Assets
These are assets that can easily be converted into cash Examples are cash, stocks, debtors, prepayment etc. They are being expected to be consumed in a time period of one year. Note that the same assets can be either fixed or current; depending on the nature of the business. Thus, machines can be fixed assets to an ordinary manufacturer, but it is a current asset to a machine trading company. Investment can be current assets to a stockjobber, but a fixed asset to an ordinary trader.
Tangible Assets
These are defined sets that can be seen or touched.
Intangible Assets
These are assets that, cannot be seen .,and touched but yet they have values. Examples are: Goodwill, Patents, trademarks etc.
Fictitious Assets
These are assets that have debit balances. Example is “loss” which has been carried forward from, one period to the other. Others are profit and loss account balance, preliminary expenses of a’ limited company.
Wasting Assets and Liquid Assets
These are fixed assets that can depreciate through the process of wear and tear. Liquid assets are cash or items which can quickly be turned into cash and as well have a marketable security.
Liabilities
These are any amount which a business is legally bound to pay. It can also be referred to as whatever amount that the business owes outside. They are of two types thus: (i)Long term Liabilities. (ii) Short term Liabilities.
Long term liabilities
These are amounts that would be payable within a long period of time, that is, within the next accounting period. Example, Loans.
Short term or current liabilities
These are amounts that would be payable within a short period of time; that is, within the next accounting period. Example, accrued expense.
Bank Loan and Overdrafts
These are Under current liability. Here, their payment are requested by banks within a short period of time.
Capital
This can be investment that is made by the owner of the business. One can say that it the amount of money used in starting up a business, plus any profit retained in the business. In case of liquidating business, that is, if a business made a profit, it will be added to the capital. If the business made a loss (incurred), it will be deducted from the amount of the capital.
In the balance sheet, assets and liabilities are listed in their order of permanence. With assets, they can start with most permanent; example, land, building or they can start with the most liquid assets, example, cash. With liabilities, they start with long-term example; capital or they can start with short term or current liabilities.