by The Balance Sheet, also called the Statement of Financial Position (SoFP), presents the financial position of an entity at a particular date. Under Ind AS 1, it shows the entity’s assets, liabilities and equity. Assets represent resources controlled by the entity, while liabilities represent present obligations. Equity represents the residual interest after deducting liabilities from assets. The statement classifies assets and liabilities as current and non current, unless another presentation is more relevant. It helps users assess the entity’s financial strength, liquidity, solvency and capital structure. The basic accounting equation is Assets = Equity + Liabilities.
Components of Balance Sheet (SoFP):
1. Assets
Assets are resources controlled by an entity as a result of past events, from which future economic benefits are expected. Under Ind AS 1, assets are generally classified as current and non current. Examples include property, plant and equipment, inventories, trade receivables, cash and cash equivalents, investments and intangible assets.
2. Liabilities
Liabilities are present obligations of an entity arising from past events, settlement of which is expected to result in an outflow of economic resources. Under Ind AS 1, liabilities are generally classified as current and non current. Examples include trade payables, borrowings, provisions, employee benefit obligations and other financial liabilities.
3. Equity
Equity represents the residual interest in the assets of an entity after deducting all liabilities. It generally includes share capital, securities premium, retained earnings and other reserves. Equity may also include other components recognised through Other Comprehensive Income. Changes in equity during the reporting period are presented separately in the Statement of Changes in Equity.
4. Current Assets
Current assets are assets expected to be realised, sold or consumed in the entity’s normal operating cycle, held primarily for trading, expected to be realised within twelve months, or consisting of cash and cash equivalents. Examples include inventories, trade receivables, short term investments, cash and other current financial assets.
5. Non-Current Assets
Non current assets are assets that do not meet the criteria for classification as current assets. They are generally held for long term use or investment. Examples include property, plant and equipment, intangible assets, long term investments, right of use assets and certain long term financial assets. They support the entity’s continuing operations.
6. Current Liabilities
Current liabilities are obligations expected to be settled during the entity’s normal operating cycle, held primarily for trading, due within twelve months, or where the entity does not have the right at the reporting date to defer settlement for at least twelve months. Examples include trade payables, short term borrowings and current provisions.
7. Non-Current Liabilities
Non current liabilities are obligations that do not meet the criteria for classification as current liabilities. They generally represent obligations payable after twelve months or beyond the entity’s normal operating cycle. Examples include long term borrowings, deferred tax liabilities, long term provisions and certain employee benefit obligations. These are presented separately in the Statement of Financial Position.
Preparation of Balance Sheet (SoFP):
| Particular | Journal Entry | Presentation in SoFP |
|---|---|---|
| Share Capital issued for cash | Bank A/c Dr. → To Share Capital A/c | Equity |
| Securities Premium | Bank A/c Dr. → To Securities Premium A/c | Equity |
| Purchase of Property, Plant and Equipment | PPE A/c Dr. → To Bank/Creditor A/c | Non Current Assets |
| Depreciation | Depreciation Expense A/c Dr. → To Accumulated Depreciation A/c | Deducted from PPE |
| Purchase of Inventory | Inventory A/c Dr. → To Bank/Creditor A/c | Current Assets |
| Credit purchase | Purchases/Inventory A/c Dr. → To Trade Payables A/c | Trade Payables under Current Liabilities |
| Credit sales | Trade Receivables A/c Dr. → To Sales A/c | Trade Receivables under Current Assets |
| Outstanding Expenses | Expense A/c Dr. → To Outstanding Expense A/c | Current Liabilities |
| Prepaid Expenses | Prepaid Expense A/c Dr. → To Expense A/c | Current Assets |
| Accrued Income | Accrued Income A/c Dr. → To Income A/c | Current Assets |
| Income received in advance | Income A/c Dr. → To Income Received in Advance A/c | Current Liabilities |
| Long Term Borrowing | Bank A/c Dr. → To Long Term Borrowing A/c | Non Current Liabilities |
| Current portion of borrowing | Long Term Borrowing A/c Dr. → To Current Borrowing A/c | Current Liabilities |
| Provision recognised | Expense A/c Dr. → To Provision A/c | Current or Non Current Liability |
| Deferred Tax Liability | Income Tax Expense A/c Dr. → To Deferred Tax Liability A/c | Non Current Liabilities |
| Deferred Tax Asset | Deferred Tax Asset A/c Dr. → To Income Tax Expense A/c | Non Current Assets |
| Profit transferred to retained earnings | Statement of Profit and Loss A/c Dr. → To Retained Earnings A/c | Equity |
| Loss transferred to retained earnings | Retained Earnings A/c Dr. → To Statement of Profit and Loss A/c | Equity |
| Dividend declared | Retained Earnings A/c Dr. → To Dividend Payable A/c | Current Liabilities |
| Cash and Bank balance | Cash/Bank A/c Dr. → To relevant account | Current Assets |
