Balance Sheet is one of the key financial statements that provides a snapshot of a business’s financial position at a particular point in time. For a sole trading concern, the balance sheet is crucial for determining the business’s assets, liabilities, and owner’s equity. The horizontal format is one where both the assets and liabilities are presented in a side-by-side layout, making it easier for analysis and comparison.
Structure of Balance Sheet in Horizontal Format
In a horizontal format balance sheet, the information is displayed in two main sections:
- Assets (on the left side)
- Liabilities & Owner’s Equity (on the right side)
Balance Sheet Format in Horizontal Layout:
Particulars | Amount (₹) | Amount (₹) |
---|---|---|
Assets | Liabilities & Owner’s Equity | |
I. Non-Current Assets (Fixed Assets) | I. Capital | |
– Land and Building | 10,00,000 | – Owner’s Capital (Balance) |
– Plant and Machinery | 5,00,000 | II. Liabilities |
– Furniture and Fixtures | 1,00,000 | – Long-Term Liabilities (Loan) |
II. Current Assets | – Short-Term Liabilities (Creditors) | |
– Cash in Hand | 50,000 | III. Reserve & Surplus |
– Cash at Bank | 1,00,000 | – Profit (Net Profit Brought Forward) |
– Accounts Receivable (Debtors) | 3,00,000 | Total Liabilities & Equity |
– Stock (Inventory) | 2,00,000 | |
Total Assets | 21,50,000 | Total Liabilities & Equity |
Explanation of Balance Sheet Components:
- Assets (Left Side):
- Non-Current Assets (Fixed Assets): These are long-term assets used in the business operations.
- Land and Building: The value of the land and buildings owned by the business.
- Plant and Machinery: The value of machinery used for production.
- Furniture and Fixtures: The value of the furniture and fixtures owned by the business.
- Current Assets: These are assets that are expected to be converted into cash or consumed within a year.
- Cash in Hand: The actual cash available on the premises.
- Cash at Bank: The money held in the business’s bank account.
- Accounts Receivable (Debtors): Amounts owed to the business by customers for goods or services provided.
- Stock (Inventory): The value of goods held for sale or raw materials.
- Total Assets: This is the sum of non-current and current assets, representing the total value of resources owned by the business.
- Non-Current Assets (Fixed Assets): These are long-term assets used in the business operations.
- Liabilities & Owner’s Equity (Right Side):
- Owner’s Capital: The net worth of the owner in the business, which is calculated as the difference between assets and liabilities.
- Liabilities: The amounts owed by the business to external parties.
- Long-Term Liabilities (Loan): Loans or borrowings that are due to be paid over a period longer than one year.
- Short-Term Liabilities (Creditors): Amounts owed to creditors or suppliers that need to be settled within a year.
- Reserve & Surplus:
- Profit (Net Profit Brought Forward): Any accumulated profits from previous periods or the current year’s net profit, which is added to the owner’s equity.
- Total Liabilities & Equity: This represents the total of all liabilities and owner’s equity, which should be equal to the total assets, ensuring the balance sheet is balanced.
Key Points:
- Assets = Liabilities + Owner’s Equity: This fundamental accounting equation must hold true for the balance sheet to be correct.
- The owner’s capital is essentially the residual interest in the assets of the business after deducting liabilities. It reflects the owner’s investment and profits in the business.
- The current assets section represents short-term resources that are expected to provide cash flow or be used up in the near future.
- Fixed assets are long-term investments used in operations and not easily liquidated.
Example Calculation:
Let’s assume the following values for a sole trading concern:
- Assets:
- Non-Current Assets:
- Land and Building: ₹10,00,000
- Plant and Machinery: ₹5,00,000
- Furniture and Fixtures: ₹1,00,000
- Current Assets:
- Cash in Hand: ₹50,000
- Cash at Bank: ₹1,00,000
- Accounts Receivable: ₹3,00,000
- Stock: ₹2,00,000
- Non-Current Assets:
- Liabilities:
- Capital: ₹8,00,000
- Liabilities:
- Loan (Long-Term Liabilities): ₹2,00,000
- Creditors (Short-Term Liabilities): ₹1,00,000
- Reserve & Surplus:
- Net Profit: ₹1,00,000
Total Assets = ₹10,00,000 + ₹5,00,000 + ₹1,00,000 + ₹50,000 + ₹1,00,000 + ₹3,00,000 + ₹2,00,000 = ₹21,50,000
Total Liabilities & Owner’s Equity = ₹8,00,000 (Capital) + ₹2,00,000 (Loan) + ₹1,00,000 (Creditors) + ₹1,00,000 (Net Profit) = ₹21,50,000