What is a Balance Sheet? Importance of Balance Sheet

December 18, 2015

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Balance Sheet

Balance sheet is the financial health report of any individual or any organisation at a particular point of time. It is the statement of the capital, assets and liabilities at a particular juncture. The details of the income, expenditure, cash inflow, cash outflow, fund inflow, fund outflow of the preceding period are detailed in the balance sheet.

Balance sheets are invariably compiled at the end of the financial year, some organisations also compile them on a half-yearly or a quarterly basis.

The Matching Principle

The matching principle demands that the sum total of both the legs of the balance sheet should match with each other. To maintain this, at times the value of assets may be reported less than the actual value, as the full amount may not be realisable. This principle also requires that the cost of fixed assets has to be calculated after taking depreciation into consideration.

The Footnotes

The footnotes or the notes are an integral part of the balance sheet. The notes have information that aids in proper understanding of the company’s balance sheet. The accounting policies, the company’s plans of expansion/modification are mentioned in the notes. The notes may at times, stretch up to 20 pages.