Balance Sheet has two sides. On the left hand side, the “liabilities” of the business are shown while on the right hand side the assets of the business appear.
It will be useful here to quote definitions of the Balance Sheet given by some prominent writers. According to Palmer, “The Balance Sheet is a statement at a given date showing on one side the trader’s property and possessions and on the other side his liabilities.” According to Freeman, “A Balance Sheet is an itemised list of the assets, liabilities and proprietorship of the business of an individual at a certain date.” The definition given by the American Institute of Certified Public Accountants makes the meaning of Balance Sheet more clear. According to it, Balance Sheet is ‘a list of balances of the asset and liability accounts. This list depicts the position of assets and liabilities of a specific business at a specific point of time.”
Proforma of Balance Sheet
There is no prescribed form of Balance Sheet for a sole proprietary and partnerhip concern. However, the assets and liabilities may be shown in any of the following order.
1. Liquidity Order.
2. Permanency Order.
1. Liquidity order. In case a concern adopts liquidity order, the assets which are more readily convertible into cash come first and those which cannot be so readily converted come next and so on. Similarly those liabilities which are payable first come first, and those payable later, come next and so on.