Question

What is “Balance Sheet” ? Explain any four components of balance sheet.

Answer 1

Components of the Balance Sheet. The balance sheet contains statements of assets, liabilities, and shareholders' equity. Assets represent things of value that a company owns and has in its possession, or something that will be received and can be measured objectively.

Answer 2

Answer:

Balance sheet is a financial statement that shows the financial position of a firm as on a specific date,usually on the close of the accounting period.The Balance sheet contains information about the resources and obligations of a business enterprise.

Explanation:

4 main components of Balance Sheet:

Heading: the name of the enterprise or company is mentioned on the top of the balance sheet.  

Assets: assets are divided into two parts-  

1. Fixed Assets: All those assets which firm has kept with intention to use it further more or less permanently are fixed assets. For example goods and services. Depreciation is part of fixed assets such as computers,machineries whose value reduces every month and the time we have used it.
2. Current Assets: these are those assets which a firm keeps as resources in the form of cash or expected to convert into cash within the accountig period time. current account exists of cash,marketable securities,loans,advances and prepayments,sundry debtors or accounts receivables,and Inventory.

Liabilities: liabilities are claims of outsiders against the business or debts of the firm. They are the amounts owed by the business to people who have lent money or provided goods or services on credit. Liabilities are further divided into 2 parts-

1. Current Liabilities: Current liabilities are those which are debts of firm payable within an accounting period.Current Assets are used to pay current liabilities.Current liabilities include creditors,bill payable,bank overdraft,tax payable,outstanding expenses and amount received in advance for goods or services to be supplied.
2. Long Term Liabilities:  A major part of the funds required by a business is obtained in the form of long term loans. You should recall that long-term liabilities are usually for more than one year. These liabilities may be secured or unsecured..

• Long Term Secured Loans- cover mortages and notes where a building or other assets assets are pledged as a specific collateral for debt.
• Long Term Unsecured Loans- include notes and bonds. Notes payable are promissory notes with maturities in excess of one year. When the note enters the final year, it is transferred to current liabilty.

Equity: The funds Provided in business by the owners is called equity. Equity representers the ownership rights in a company and arises from several sources. The contribution of owners to the company's funds is known as share capital.