by Balance Sheet of a partnership firm provides an overview of the financial position of the business at a specific point in time. It lists the firm’s assets on the left side and its liabilities and owner’s equity (capital of the partners) on the right side. In a horizontal format, both sections are displayed in a side-by-side layout.
Structure of Balance Sheet in Horizontal Format for Partnership Firms
The balance sheet consists of two main parts:
- Assets (on the left side)
- Liabilities & Capital (on the right side)
Balance Sheet Format in Horizontal Layout:
| Particulars | Amount (₹) | Amount (₹) |
|---|---|---|
| Assets | Liabilities & Capital | |
| I. Non-Current Assets (Fixed Assets) | I. Partners’ Capital Account | |
| – Land and Building | 12,00,000 | – Partner 1 Capital |
| – Plant and Machinery | 8,00,000 | – Partner 2 Capital |
| – Furniture and Fixtures | 2,00,000 | II. Liabilities |
| II. Current Assets | – Long-Term Liabilities (Loan) | |
| – Cash in Hand | 1,00,000 | – Short-Term Liabilities (Creditors) |
| – Cash at Bank | 2,00,000 | III. Reserve & Surplus |
| – Accounts Receivable (Debtors) | 4,00,000 | – Profit (Net Profit Brought Forward) |
| – Stock (Inventory) | 3,00,000 | Total Liabilities & Capital |
| Total Assets | 20,00,000 | Total Liabilities & Capital |
Explanation of Balance Sheet Components:
- Assets (Left Side):
- Non-Current Assets (Fixed Assets): Long-term assets that are used in the business operations.
- Land and Building: The value of land and buildings owned by the partnership firm.
- Plant and Machinery: The value of machinery used in production or business activities.
- Furniture and Fixtures: The value of office furniture, fixtures, and other long-term assets.
- Current Assets: These are short-term assets that are likely to be converted into cash or used up within a year.
- Cash in Hand: The cash available in the business premises.
- Cash at Bank: The balance in the partnership’s bank account.
- Accounts Receivable (Debtors): Amounts owed to the business by customers or clients.
- Stock (Inventory): The value of goods held by the partnership, either for sale or for use in production.
- Total Assets: The sum of non-current and current assets, which reflects the total value of resources owned by the partnership firm.
- Non-Current Assets (Fixed Assets): Long-term assets that are used in the business operations.
- Liabilities & Capital (Right Side):
- Partners’ Capital Account: This section lists the capital invested by the partners in the business. It is split between each partner.
- Partner 1 Capital: The capital contribution of Partner 1.
- Partner 2 Capital: The capital contribution of Partner 2.
- Liabilities: These represent the amounts owed by the firm to outsiders.
- Long-Term Liabilities (Loan): Loans or borrowings that need to be repaid over a period longer than one year.
- Short-Term Liabilities (Creditors): Amounts owed to creditors or suppliers, expected to be settled within a year.
- Reserve & Surplus:
- Profit (Net Profit Brought Forward): This refers to accumulated profits from prior periods or the current year’s profit that is added to the owner’s equity.
- Total Liabilities & Capital: The sum of all liabilities and capital accounts. This figure should be equal to the total assets.
- Partners’ Capital Account: This section lists the capital invested by the partners in the business. It is split between each partner.
Key Points:
- Owner’s Capital: In the case of a partnership firm, the capital accounts of each partner reflect their ownership and share in the firm’s profits and losses.
- The partnership firm’s balance sheet follows the accounting equation:
Assets = Liabilities + Capital
The assets must always be equal to the sum of liabilities and the capital invested by the partners.
- Current assets are expected to provide liquidity in the short term, while fixed assets represent long-term investments.
- Liabilities include both long-term borrowings and short-term obligations such as creditors.
Example Calculation:
Let’s assume the following balances for a partnership firm with two partners (Partner 1 and Partner 2):
Assets:
- Non-Current Assets:
- Land and Building: ₹12,00,000
- Plant and Machinery: ₹8,00,000
- Furniture and Fixtures: ₹2,00,000
- Current Assets:
- Cash in Hand: ₹1,00,000
- Cash at Bank: ₹2,00,000
- Accounts Receivable: ₹4,00,000
- Stock (Inventory): ₹3,00,000
Total Assets = ₹12,00,000 + ₹8,00,000 + ₹2,00,000 + ₹1,00,000 + ₹2,00,000 + ₹4,00,000 + ₹3,00,000 = ₹20,00,000
Liabilities & Capital:
- Partners’ Capital:
- Partner 1 Capital: ₹5,00,000
- Partner 2 Capital: ₹4,00,000
- Liabilities:
- Long-Term Liabilities (Loan): ₹3,00,000
- Short-Term Liabilities (Creditors): ₹2,00,000
- Reserve & Surplus:
- Net Profit (Brought Forward): ₹1,00,000
Total Liabilities & Capital = ₹5,00,000 + ₹4,00,000 + ₹3,00,000 + ₹2,00,000 + ₹1,00,000 = ₹20,00,000
Thus, the Balance Sheet is balanced, with the total assets equal to the total liabilities and capital.
