Understanding The Balance Sheet And Its Format

The Indian Institute of Banking and Finance has published an official notification asking eligible applicants to apply for the JAIIB Exam 2021. According to the JAIIB Exam Notice, online registration will begin on November 9th, 2021, and the online examination will be held on January 8th, 9th, and 22nd, 2022.

Junior Associate of Indian Institute of Bankers (JAIIB), the flagship course, is an Associate examination offered by the IIBF and is exclusively open to ordinary members of the Institute.

By nurturing and developing competent professional employees already a member of IIBF through JAIIB exam 2021, the Indian Institute of Banking and Finance aims to improve banking and financial services, banking technology, customer relations, and other accountancy and legal aspects of the banking industry.

Because the key papers are related to banking and finance, significant financial knowledge is required to pass the exam. In this post, we will look at the topic of Balance Sheet – Meaning & Format, which is a fundamental statement that everyone should be aware of.

Balance Sheet – Meaning & Format

A balance sheet is a financial statement that shows the assets, liabilities, and shareholder equity of a corporation at a certain point in time. Balance sheets serve as the foundation for calculating investor returns and assessing a company’s financial structure. In a nutshell, a balance sheet is a financial statement that shows what a company owns and owes and how much money shareholders have invested.

The balance sheet shows the overall assets of the organisation as well as how those assets are financed, whether through debt or stock. A statement of net worth or a statement of financial status are other terms for the same thing. The fundamental equation underpins the balance sheet: Liabilities Equity Equals Assets.

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What Is A Balance Sheet’s Purpose?

A balance sheet aims to allow internal and external stakeholders and potential stakeholders such as investors and lenders to analyse a company’s overall financial health.

The business’ efficiency, which is determined by how well it manages its assets, and its liquidity, which is determined by how readily you can convert its assets into cash, are two typical elements indicated in the balance sheet.

The balance sheet will be used for a variety of purposes by various stakeholders, depending on their interests or needs.

A bank, for example, would examine a balance sheet to evaluate whether or not to lend money to a company. The bank would look at the company’s present obligations to see if it has already borrowed too much and will have trouble repaying it, making it a less likely candidate for credit.

What Is Included In A Balance Sheet?

The elements of a balance sheet vary depending on the sort of business; however, there are three primary categories:

Assets

A company’s assets are anything of worth that it owns and can convert into cash. The assets portion of a balance sheet shows a company’s assets and contributes to its overall value.

There are two categories of assets on a conventional balance sheet:

Current Assets

Current assets are assets that have a limited lifespan (one year or less) and can be easily converted into cash by the firm. Inventory, cash or cash equivalents, and accounts receivable, which is money due by consumers over a short period, are all examples.

Non-Current Assets

Non-current assets have a life expectancy of more than a year and take longer to convert to cash. Tangible assets such as land, buildings, and machinery and intangible assets like trademarks, patents, and long-term investments are examples.

Liabilities

The debts that a corporation owes to a third party, such as a bank or lender, are referred to as liabilities. The liabilities part of a balance sheet indicates the company’s soundness and whether it has any past-due accounts.

Liabilities are divided into two categories, similar to assets:

Current Liabilities:

Debts or other financial commitments that the corporation must pay within a year are referred to as current liabilities. Wages, short-term loans, and accounts payable, which is money owed to suppliers for products purchased on credit, are all examples.

Non-Current Liabilities

Long-term liabilities are debts and other financial commitments with a payment due date that is more than a year away. Long-term loans, deferred income taxes, and pension payments are all examples.

Owners’ Equity

After paying off liabilities, owners’ equity, also known as shareholders’ equity, refers to the owners’ remaining claim on assets. Owners’ equity is also known as net assets, which is defined as assets minus liabilities. “Owners’ equity” is used by sole proprietorships, while “shareholders’ equity” or “stockholders’ equity” is used by corporations.

The following are some of the components that are frequently encountered in the equity section of the balance sheet:

Ordinary Stock

Preferred stock and ordinary stock are two types of stock that represent a company’s ownership. Preferred stockholders have priority over common stockholders, which means they get dividend payments or asset distributions first, for example, if the firm is liquidated.

Paid-in capital refers to the money or other assets that shareholders have provided in exchange for stock in the company.

Retained Earnings

Retained earnings: This figure shows a company’s net income after dividends have been paid out to shareholders.

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Balance Sheet Format (An Illustrative)

LIABILITIESAmount (Rs.)ASSETSAmount (Rs.)
Capital AccountxxxNon-Current Assets:
Property, Plant & Equipment:
Non-Current Liabilities:Plant & Machineryxxx
Long term BorrowingsxxxFurniture & Fixturexxx
DebenturesxxxMotor Carxxx
Current Liabilities:Current Assets:
Short term BorrowingsxxxInventoryxxx
Sundry CreditorsxxxSundry Debtorsxxx
Duties & TaxesxxxLoans & Advancesxxx
Short term ProvisionsxxxCash at Bankxxx
Cash in Handxxx
XXXXXXXX

Conclusion

The Junior Associate of the Indian Institute of Bankers is one of India’s most distinguished exams, with only a handful passing and becoming members of this renowned Institute. You’ll need excellent accounting concepts, analytical skills, and time management skills to pass this exam.

Oliveboard can assist you in your quest to pass this exam; explore Oliveboard to make use of its resources, study materials, and mock test sessions to succeed in exams.

FAQ’s

What Is A Balance Sheet, and Why Do You Need One?

A balance sheet is a financial statement that shows the assets, liabilities, and shareholder equity of a business at a certain point in time.
The basis for calculating investor rates of return and evaluating a company’s capital structure is the balance sheet.
In a nutshell, a balance sheet is a financial statement that shows what a company owns and owes, as well as how much money shareholders have invested.

Why is our company’s land valued at cost on its balance sheet yet it is so much more valuable?

The cost concept serves as guidance for accountants. Accountants must report assets at their acquisition cost, not their replacement cost or market value. The historical cost is a measurable figure that can be easily verified.
The market value, on the other hand, is subjective: one individual may believe the land is worth Rs. 1 crore, while another may believe it is worth 1.5 crores. The accountants’ going concern assumption adds to the cost principle’s support.