What is a balance sheet? What are its characteristics ? Discuss the need of preparing a balance sheet.

What is a balance sheet? What are its characteristics ? Discuss the need of preparing a balance sheet.

Expert Solution

A statement prepared to determine assets and values of a business on a particular date is known as Balance Sheet. Debits represent the assets while credits signify the liabilities.

It has the following characteristics:

1. Reflects financial position of a business.

2. It is dependent on other statements such as trading and P & L account.

3. It is prepared at the end of an accounting period.

4. The balance of both sides should tally.

Balance sheet needs to be prepared due to following reasons:

1. To show financial position of business.

2. To show much assets and liabilities a business has

3. It serves as information source for internal and external users

4. It acts as a reference for balances that need to be carried forward

5. To gather an idea about the liquidity of the firm or business

6. Helps management in planning and controlling business operations.

Nabeel answered 2 years ago

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