What do you mean by Grouping and Marshalling
Answers
Answer:
Grouping
In accounting, Grouping refers to presenting similar items with similar qualities together. They are shown under a common head inside financial statements. For example, let’s say a company has 200 different creditors that it deals with. All of them will not be shown separately in financial statements, only the net total of all the creditors will be presented.
Another example would be of Stock which shows the net total of (Raw Material + Work In Progress + Finished Stock).
Marshalling
The arrangement of assets and liabilities on the balance sheet in proper order is called Marshalling. The assets, liabilities, and capital on a balance sheet must be properly marshalled and shown in a logical order. There are 2 common ways of Marshalling:
By Liquidity
Assets are arranged in order of liquidity i.e. they can be converted to cash easily. Most liquid assets, such as cash, will come first and least liquid assets, such as building, will come last. Liabilities are arranged in the order they are to be discharged.
Sample Format of a Balance Sheet in Order of Liquidity
Liabilities Amt Assets Amt
Bills Payable xxxx Cash xxxx
Creditors xxxx Bank xxxx
Loans xxxx Govt. Securities xxxx
Outstanding Expenses xxxx Other Investments xxxx
Reserves & Surplus xxxx Bills Receivable xxxx
Capital xxxx Debtors xxxx
Stock xxxx
Furniture xxxx
Plant & Machinery xxxx
Building xxxx
By Permanence
Assets are arranged in order of permanency i.e. with the most permanent on the top and the most liquid on the bottom. Liabilities which have to be discharged last are shown first and those which have to be discharged first are shown last.
Sample Format of a Balance Sheet in Order of Permanence
Liabilities. Amt Assets. Amt
Capital. xxxx Building xxxx
Reserves. xxxx Plant & Machinery xxxx
Outstanding
Expenses xxxx Furniture xxxx
Loans xxxx Stock xxxx
Creditors xxxx Debtors xxxx
Bills Payable xxxx Bills Receivable xxxx
Other Investments xxxx
Govt. Securities xxxx
Bank xxxx
Cash xxxx