Balance Sheet is a financial statement that provides a snapshot of a company’s financial position at a particular point in time. It lists the company’s assets, liabilities, and shareholders’ equity. The balance sheet is prepared to ensure that the total assets equal the total liabilities and shareholders’ equity.
In the vertical format, the balance sheet is presented in a top-to-bottom layout rather than the traditional left-right format.
Structure of Balance Sheet in Vertical Form:
1. Title
- The title of the balance sheet should include the name of the company and the date of preparation.
- Example: Balance Sheet of XYZ Ltd. as on December 31, 2024
2. Assets Section
The asset section is split into two categories:
- Non-current Assets (Fixed Assets): These are long-term investments or assets that the company intends to use for more than a year.
- Current Assets: These are short-term assets that are expected to be converted into cash or used up within a year.
3. Liabilities and Equity Section
- Non-current Liabilities (Long-term Liabilities): Liabilities that the company is expected to settle in more than one year.
- Current Liabilities: Liabilities that are due within one year.
- Shareholders’ Equity: This represents the residual interest in the assets of the company after deducting liabilities, including share capital and reserves.
Example: Balance Sheet in Vertical Form
Particulars | ₹ |
---|---|
I. Assets | |
Non-current Assets (Fixed Assets) | |
1. Property, Plant, and Equipment | 10,00,000 |
2. Intangible Assets | 2,00,000 |
3. Long-term Investments | 5,00,000 |
Total Non-current Assets | 17,00,000 |
Current Assets | |
1. Inventories | 3,00,000 |
2. Trade Receivables | 4,00,000 |
3. Cash and Cash Equivalents | 2,50,000 |
4. Short-term Investments | 1,00,000 |
Total Current Assets | 10,50,000 |
Total Assets (I) | 27,50,000 |
II. Liabilities and Equity | |
Non-current Liabilities (Long-term) | |
1. Long-term Borrowings | 8,00,000 |
2. Deferred Tax Liabilities | 1,50,000 |
Total Non-current Liabilities | 9,50,000 |
Current Liabilities | |
1. Short-term Borrowings | 2,00,000 |
2. Trade Payables | 1,50,000 |
3. Other Current Liabilities | 1,00,000 |
Total Current Liabilities | 4,50,000 |
Total Liabilities (II) | 14,00,000 |
III. Shareholders’ Equity | |
1. Share Capital | 5,00,000 |
2. Reserves and Surplus | 8,50,000 |
Total Shareholders’ Equity | 13,50,000 |
Total Liabilities and Equity (III) | 27,50,000 |
Explanation of Each Section:
- Assets Section:
- Non-current Assets: These assets are expected to provide value over a long period of time (more than one year). This includes property, plant, and equipment (PPE), intangible assets like patents or goodwill, and long-term investments.
- Current Assets: These are assets that the company expects to convert into cash or use up within one year. They include inventory (raw materials, finished goods), trade receivables (amounts owed by customers), cash and cash equivalents, and short-term investments.
- Liabilities Section:
- Non-current Liabilities: These are long-term obligations, such as long-term loans or bonds payable, that are due after more than a year.
- Current Liabilities: These liabilities are obligations the company expects to settle within one year, including short-term borrowings, trade payables (amounts owed to suppliers), and other current liabilities like accrued expenses.
- Shareholders’ Equity Section:
- Share Capital: This represents the money invested by the shareholders of the company in exchange for shares. This includes both the issued capital and the subscribed capital.
- Reserves and Surplus: These are the accumulated profits and other reserves that have not been distributed as dividends. This can include retained earnings and various other reserves.
Key Points to Remember:
- The total of assets should always equal the total of liabilities and equity (as per the accounting equation: Assets = Liabilities + Equity).
- The vertical format of the balance sheet presents a clear, top-to-bottom view of the financial position, making it easy to read and compare.
- The balance sheet is usually prepared at the end of the fiscal year or reporting period to provide stakeholders with an overview of the company’s financial health.