Balance Sheet – Detailed Preparation
We now take the Net Profit/Loss from the Profit & Loss Account and close the books to present the Balance Sheet.
Scenario (Continuation)
XYZ Manufacturing Ltd. – FY 2024‑25
| Item | Amount (₹) |
|---|---|
| Assets | |
| Cash & Bank | 1,20,000 |
| Debtors | 80,000 |
| Closing Stock | 1,10,000 |
| Fixed Assets (Net) | 5,00,000 |
| Total Assets | 8,10,000 |
| Liabilities | |
| Creditors | 60,000 |
| Short‑term Loans | 40,000 |
| Long‑term Loan | 2,00,000 |
| Total Liabilities | 3,00,000 |
| Equity | |
| Capital (incl. Reserves) | 3,00,000 |
| Retained Earnings (Net Loss) | ‑20,000 |
| Total Equity | 2,80,000 |
| Total Liabilities & Equity | 5,80,000 |
Note: The assets total must equal liabilities + equity. Here we see a mismatch because the Net Loss reduces equity; we need to adjust capital or include other reserves to balance. For illustration, we’ll assume an additional General Reserve of ₹2,30,000 to balance.
Steps to Prepare
- List Assets – Separate Current and Fixed assets.
- List Liabilities – Separate Current and Long‑term.
- Calculate Equity:
- Start with Capital.
- Add Reserves (if any).
- Add Retained Earnings (Net Profit/Loss).
- Balance the Sheet – Ensure Assets = Liabilities + Equity.
- Present – Use the standard format with two columns.
Final Layout Example
| Assets | ₹ | Liabilities & Equity | ₹ |
|---|---|---|---|
| Cash & Bank | 1,20,000 | Creditors | 60,000 |
| Debtors | 80,000 | Short‑term Loans | 40,000 |
| Closing Stock | 1,10,000 | Long‑term Loan | 2,00,000 |
| Fixed Assets (Net) | 5,00,000 | Capital | 3,00,000 |
| General Reserve | 2,30,000 | ||
| Retained Earnings (Loss) | ‑20,000 | ||
| Total Assets | 8,10,000 | Total Liabilities & Equity | 8,10,000 |
Key Points
- Equity reflects owners’ claim after liabilities.
- Retained Earnings can be profit or loss.
- Reserves are optional but often used to balance.
Common Mistakes
- Forgetting to include Closing Stock as an asset.
- Not adjusting Equity for Net Loss.
- Misclassifying Long‑term loans as current liabilities.
Quiz
Test Your Knowledge
Question 1 of 3
1. Equity is calculated as:
💡 Final Wisdom: "Balance Sheet is a mirror – if the reflection isn’t equal, something’s missing. Double‑check every asset, liability, and equity entry."