10 Practical Balance Sheet Tips

To make and understand the balance sheet of every company is not so simple. There are lots of assets and liabilities which you can find, which may be new for you. So, you should follow our following tips for becoming master in balance sheet.

1st Tip : Only assets and liabilities can be included in balance sheet. We include net profit in the liability side of balance sheet because we have to give this money to shareholder in future. This is just reward for shareholder which we have retained in business. So, it will become company's liability.

2nd Tip: All liabilities of balance sheets are also resources for its assets. It means every asset which is showing in the balance sheet have been obtained from the funds of our liabilities.

3rd Tip : To know all the assets and liabilities, it is very good to classify all the assets and liabilities. We can classify assets and liabilities in long term and current. Current assets are those which gives one year benefit. Long term assets are those which give long term benefits. Current liabilities are those which will be paid within one year. Long term liabilities are those which will be paid in long term.

4th Tip : If we compare both total assets and total liabilities, excess of total assets over total liabilities will be the capital. In company case, it will be share capital which can be divided in equity share capital and preference share capital.

5th Tip : We makes balance sheet for a specific date. Next day figures of balance sheet may be different or new assets or  liabilities may be added or deducted. So, we can not make it for full financial year.

6th Tip : All the Not-for-profit organisations (NGOs) aslo make balance sheet. All the assets and liabilities are almost equal to the balance sheet of other organisation but difference will be of capital. We say NGOs' capital as capital fund but other company's balance sheet shows share capital. Reason is that NGOs can not issue shares for collecting capital. They can collect capital through donation. So, excess of its assets our its liabilities will be capital fund. We add surplus from business operation in it. This surplus is just like net profit but we can not show net profit because aim of NGO is not to earn profit.

7th Tip : We show outstanding income and advance expenses as our current assets in the balance sheet. Outstanding expenses and advance incomes will be added in current liabilities.

8th Tip : For increasing your expertise in balance sheet, it is best way to study all the companies' balance sheet. Every company will give you idea to learn something new. For example, you can learn that impairment loss is not just show as expense, it is also deducted from particular fixed asset. You can see in Castrol's balance sheet.

9th Tip: If you are making the consolidated balance sheet, it is very necessary to calculate minority interest and it is shown separately in liability side of balance sheet. It is not included in the share capital of parent company.

10th Tip : If you want to go more deeply in balance sheet, it is very necessary, you should study updated news relating to balance sheet keyword. You can use google alert for this. You can search balance sheet in google, in first page end, you will find its news. In news, you find very interesting facts. For example, today news relating to balance sheet is "Nortel trial: Balance sheet entries that led to $900 million in restatements an honest mistake, fraud trial hears" From this news, I find that oldest balance sheet may be checked and a small mistake in it can become the case of fraud.







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Accounting Education: 10 Practical Balance Sheet Tips
10 Practical Balance Sheet Tips
Accounting Education
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