Question

What information is contained in the balance sheet? What are limitations of the balance sheet? How can balance sheet limitations be overcome?

Answer 1

The Balance Sheet is used for financial reporting and analysis as part of the financial statements of the company. It contains information related to assets, liabilities and shareholders equity. Assets represent things of value that a company owns and has in its possession, or something that will be received and can be measured objectively. Liabilities are the debts owed by a business. They are obligations that must be paid under certain conditions and time frames. A company’s equity represents retained earnings and funds contributed by its owners or shareholders (capital).

Limitations of balance sheet-

• Items on the balance sheet are not all measured on the basis of same method; some assets and liabilities are measured at historical cost, while some are measured based on their current market value.
• The balance sheet does not tells about the Qualitative aspects of the company like employees efficiency and effectiveness, management's effectiveness etc.

How to overcome balance sheet limitations-

Internal audit and continuous checking of the financial statements should be done so that there would be no or very less errors in the balance sheet of the company.