8 Meaning of Balance sheet and Classifications of Assets and Liabilities.

Balance Sheet

Balance sheet is a statement of assets and liabilities as on a particular date.  The balance sheet shows the sources and applications of capital. On the left hand side of the balance sheet shows the liabilities and capital and the right hand side of the balance sheet shows all the assets. Both sides of the balance sheet should be always equal, that means, assets must be equals with liabilities.

Format of Balnce sheet

Format of Balance Sheet

Classification of Assets and Liabilities

The classification of different assets and liabilities are as shown below;

Classification of Assets

Assets represents the possession and properties of the business. The assets are the valuable things which owns the business. Some of the examples of the Assets are land & building,Furniture, plant & machinery, stock, cash, debtors etc. As per the nature of assets they are classified in to the following types.

1.       Fixed Assets

Fixed Assets are those Assets which are acquired and held permanently and is used for the future with the intention of earning profits. Land & building  Furniture, plant & machinery are some of the examples for fixed assets.

2.       Current Assets

Current assets are those assets which can be converted in to cash or can be used for the process of production of goods and services. Cash, stock,debentures etc are some of the examples for current assets.

3.       Liquid Assets

Liquid assets are those assets which are in the form of cash or can be easily converted in to cash. Cash, debenture, bills receivables are some of the examples for Liquid assets.

4.       Tangible Assets

Tangible assets are those assets which can be seen and touch and have a definite volume such as cash, stock etc.

5.       Fictitious Assets

These are assets which have no real value and are losses for the business. Examples of fictitious assets are p&L a/c debit balance, preliminary expenses etc.

6.       Wasting Assets

Assets which have exhausted or reduces in value by their workings are called Wasting Assets. Examples for Wasting assets are mines , quarries etc.

7.       Contingent Assets

These are assets the existence, value and ownership of this is depends on the occurance and non occurance of a specified act or an uncertain future event.

Classification of Liabilities

Liability is a claim in which the business owes. This includes the credit balance of personal accounts, real account and the owners capital. Liabilities are classified in four categories. They are as follows:-

1.       Fixed Liabilities

Fixed liabilities are those liabilities which are payable only on the termination of the business. This includes the owners paid up capital, reserves and surplus etc.

2.       Long term Liabilities

Long term liabilities are those awhich are payable only after a long period of time say five to ten years.

3.       Current Liabilities

Current Liabilities are those which will be payable out of current assets within the next accounting period usually a year.

4.       Contingent Liabilities

Contingent liability is one which is not an actual liability but it will become an actual on the occurance of some future uncertain event.

These all are the kind or classifications of Assets and Liabilities in the balance sheet of a business.