Any business man is interested in knowing the position of its business as existing on a particular day. He may have many questions in his mind regarding his business like………………..
How much cash do I have in hand or at bank?
How much amount has been invested in inventories?
What amount third parties owe to the business?
How much I have invested in fixed or long term assets like land and building,plant and machinery, furniture and fixture?
How much expenses I have paid in advance?
What is the amount of accrued incomes i.e. the incomes earned but not yet received?
How much do I owe to others (like creditors)?
What is the amount of Long term liabilities of the business?
The amount of outstanding expenses(the expenses which are due but not yet have been paid) ?
How much capital has been invested in the business?
…. and many more questions of these types……..
Now the question that arise is, Is there any single statement that can provide a reliable answer to all these questions???
And the answer is, yes…. There is one single statement that answers all these questions and that is the Balance sheet of the firm or company. Balance sheet is actually a quick snapshot of the financial position of the company. It shows what the company owns and what it owes to others. Balance sheet is a statement of assets and liabilities of a business. It shows the position of the business as existing on a particular day. It has two sides- Asset side and Liabilities side. All the assets of the business whether fixed or current, tangible or intangible,are shown on the right side of the balance sheet. And all the Liabilities, long term or short term, along with the Capital of the Business are shown on the left side of the balance sheet. Balance sheet is generally prepared at the end of the accounting period. But now a days accounting softwares allow the electronic recording, storing, and retrieval of accounting information. Thus you can generate financial statements at any time if you are in a habit of entering your financial transactions on regular basis.