Question

The following balance sheet has been submitted to you by an inexperienced bookkeeper. List
your suggestions for improvements in the format of the balance sheet. Consider both terminology
deficiencies as well as classification inaccuracies.

Jaspreet Industries, Inc.
Balance Sheet
For the Period Ended 12/31/17

Assets

Fixed Assets—Tangible
Equipment $110,000
Less: reserve for depreciation (40,000) $ 70,000
Factory supplies 22,000
Land and buildings 400,000
Less: reserve for depreciation (150,000) 250,000
Plant site held for future use 90,000 $ 432,000
Current Assets
Accounts receivable 175,000
Cash 80,000
Inventory 220,000
Treasury stock (at cost) 20,000 495,000
Fixed Assets--Intangible
Goodwill 80,000
Notes receivable 40,000
Patents 26,000 146,000
Deferred Charges
Advances to salespersons 60,000
Prepaid rent 27,000
Returnable containers 75,000 162,000
TOTAL ASSETS $1,235,000

Liabilities

Curent Liabilities
Accounts payable $140,000
Allowance for doubtful accounts 8,000
Common stock dividend distributable 35,000
Income tax payable 42,000
Sales tax payable 17,000 $ 242,000
Long-term Liabilities, 5% debenture bonds, due 2020 500,000
Reserve for contingencies 150,000 650,000
TOTAL LIABILITIES 892,000

Equity
Capital stock, $10 par value, issued 12,000 shares with
60 shares held as treasury stock $150,000
Capital surplus 90,000
Dividends paid (20,000)
Earned surplus 123,000
TOTAL EQUITY 343,000
TOTAL LIABILITIES AND EQUITY $1,235,000

Note 1. The reserve for contingencies has been created by charges to earned surplus and has
been established to provide a cushion for future uncertainties.
Note 2. The inventory account includes only items physically present at the main plant and
warehouse. Items located at the company's branch sales offices amounting to $40,000
are excluded since the company has consistently followed this procedure for many
years.
Solution: (Write your suggestions in points)

Answer 1

Solution : As we know balance sheet is one of the most important financial statement prepared by every businessmam. It is prepared once in a year reflects the financial position of the business, showing your assets liabilities and equit. This statement doen not only reflects only financial position but also helps the business whether to give a loan or not. Following are the points shown the improvement in the format of balance sheet given above in the question. These are :

1. In account format, the balance sheet is divided into left and right sides like a T account and in report format, the balance sheet elements are presented vertically i.e. the liabilities section should pe presented at the top and liabilities and equity section should be presented below the liabilities section.

2. Assets are listed on the right hand side and liabilities should be listed on left hand side .

3. The date for which year balance sheet is prepared should also be written like as ' Balance sheet as on 31Dec,2017.

4.If all the elements of balance sheet are correctly listed then the total of right hand side (i.e. assests side ) must be equal to total of left hand side ( i.e.liabilities side).

5. All the fixed assests and current assets should be listed on right hand side in a proper formatting like as

Fixed assets- Intangible  

Goodwill

Patent  

Tangible- Land and Building

Plant

Equipment

Factory supplies

Loans and advances:

Advances to customers

Current assests:

Notes receivables

Inventory

Prepaid rent

Cash

6. All the liabilities and equity should be written on left hand side in proper formatting like as

Capital :  

Net profit :

Earned surplus

Capital surplus

Equity  

Common stock

Treasury stock

Long term liabilities:

5% Debenture bonds

Current liabilities:

Accounts payable

Income tax payable

Sales tax payable

Dividend payable

7. Reserve for contingencies should be  shown as footnote after the balance sheet.

8. The allowance for doubtful accounts is the reduction of the total amount of accounts receivable on the company's balance sheet,and is listed as deducyion immediately below the the receivableline item. This deduction is known as contra assest account.

9. Depreciation should not be shown in balance sheet it shluld be shown on Dr. Side if P&L A/C.