A Balance Sheet shows a company’s assets, liabilities, and equity at a specific date. It’s the mirror of financial health—useful for liquidity, solvency, and decisions. ✅ Manual basics matter; software (Tally/Busy/Zoho) is fast but fundamentals are crucial.
- Balance Sheet Format in Accounting – Old is Gold
- Balance Sheet Meaning in Accounting
- Flow of Preparing a Balance Sheet (Manual Method)
- Types of Balance Sheet Formats
- Balance Sheet Example with Dummy Figures
- Balance Sheet – Mirror of Financial Health
- Balance Sheet in Tally Prime with Example
- Why Liabilities Are Written First in a Balance Sheet
- Balance Sheet Ratios
- Major Groups in Balance Sheet
- FAQs on Balance Sheet
Balance Sheet Format in Accounting – Old is Gold
When I started my accounting career, preparing a Balance Sheet was not just clicking a button. It was a task of learning and applying the fundamentals. We used to prepare everything manually:
- Recording general voucher entries
- Doing ledger creation
- Posting each ledger
- Passing closing entries
- Preparing the Trial Balance (TB)
- Drafting the Profit & Loss Account (P&L A/c)
- And finally preparing the Balance Sheet (B/S)
At every stage, we were conscious about Debit and Credit effects. If something went wrong, we had to trace the mistake back through vouchers, ledgers, or postings until the Trial Balance tallied. Only then could we move to the Balance Sheet.
Today, accounting software like Tally Prime, Busy, or Zoho Books instantly prepares a Balance Sheet once you pass entries. While this saves time, many so-called “computer accountants” don’t really understand the impact of Dr/Cr on books of accounts. Without that knowledge, one is only operating software, not practicing accounting.
That’s why I always say: Old is Gold. Manual accounting built the foundation that helps me even today. Technology is great, but without basics, it can be dangerous.
Balance Sheet Meaning in Accounting
A Balance Sheet is a financial statement that shows a company’s assets, liabilities, and equity at a specific point of time. It follows the basic accounting equation:
Assets = Liabilities + Equity
👉 In simple words, a Balance Sheet is like a snapshot of business health, showing what the company owns and what it owes. This is often taught in balance sheet in accounting class 11 and higher.
Flow of Preparing a Balance Sheet (Manual Method)
-
General Voucher Entry
Record business transactions (Sales, Purchases, Payments, Receipts).
-
Ledger Creation
Create accounts under proper heads (Assets, Liabilities, Income, Expenses).
-
Posting into Ledgers
Transfer each voucher entry into respective ledgers.
-
Closing Entries
Adjust prepaid expenses, outstanding expenses, accrued income, depreciation, etc.
-
Trial Balance
Prepare a list of balances from all ledgers to check if Debit = Credit.
-
Profit & Loss A/c
Record incomes and expenses to calculate net profit or loss.
-
Balance Sheet
Finally prepare the statement of Assets, Liabilities, and Capital to reflect the financial position.
👉 This is the basic process of how to prepare balance sheet step by step.
Types of Balance Sheet Formats
There are two common ways of presenting a Balance Sheet:
1. T-Format (Horizontal Balance Sheet Format for Students)
- Left Side → Liabilities & Equity
- Right Side → Assets
- This looks like the letter “T”, hence called T-format.
- It is widely used in traditional manual accounting and in older textbooks.
- Easy to understand for beginners, as it clearly shows that total Liabilities = total Assets.
- Often included in balance sheet format for students in Class 11 and 12.
2. Vertical Format (Schedule VI Balance Sheet Format as per Companies Act 2013)
- All items are shown in a vertical sequence instead of two sides.
- Liabilities & Equity are shown at the top, followed by Assets below.
- This format is prescribed under Schedule VI of the Indian Companies Act 2013.
- It is modern, professional, and widely used in corporate reporting and published financial statements.
- Easier for analysis as items are arranged in order of permanence or liquidity.
| Aspect | T-Format (Horizontal) | Vertical Format (Schedule VI) |
|---|---|---|
| Layout | Two sides (Liabilities on left, Assets on right) | Top-to-bottom sequence (Liabilities/Equity at top, Assets below) |
| Look | Resembles the letter “T” | Straight vertical presentation |
| Usage | Traditional/manual accounting, student learning | Modern corporate reporting, legal compliance |
| Ease of Understanding | Simple for beginners | Preferred for professional analysis |
| Regulation | Not mandated | Prescribed under Companies Act 2013 (Schedule VI) |
Balance Sheet Example with Dummy Figures
Balance Sheet of XYZ Enterprises as on 31st March 2025
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital | 5,00,000 | Cash in Hand | 50,000 |
| Reserves | 1,00,000 | Bank Balance | 75,000 |
| Loan from Bank | 2,50,000 | Debtors | 1,25,000 |
| Current Liabilities | 75,000 | Stock | 2,00,000 |
| Fixed Assets | 5,00,000 | ||
| Total | 9,25,000 | Total | 9,25,000 |
👉 This is a balance sheet example with dummy figures for students and beginners.
Balance Sheet – Mirror of Financial Health
A Balance Sheet is often called the mirror of business because:
- Liquidity Check → Shows whether the business has enough current assets to meet short‑term obligations.
- Solvency Test → Indicates whether the business can repay its long‑term debts.
- Financial Stability → By comparing assets and liabilities, one can judge the strength of the company.
- Investor Confidence → Helps investors and bankers decide whether to invest or lend money.
- Decision Making → Owners can plan expansion, control expenses, or restructure debt based on balance sheet analysis.
In short, the Balance Sheet is not just a statement — it is a snapshot of the business’s financial health, a mirror that reflects how strong or weak the enterprise truly is.
Balance Sheet in Tally Prime with Example
One of the most practical ways students and accountants learn today is by preparing a balance sheet format in Tally with example. In Tally Prime, once you enter vouchers, ledgers, and adjustments, the software automatically generates:
- Profit & Loss Account
- Trial Balance
- Balance Sheet in vertical format
👉 But remember: without understanding Dr and Cr rules, just depending on software can be risky.
Why Liabilities Are Written First in a Balance Sheet
In India (and in traditional accounting formats), we show Liabilities and Equity first, followed by Assets.
Reasons:
- Logical Accounting Equation → Balance Sheet is based on Assets = Liabilities + Equity. We first recognize the sources of funds, then their application.
- Source vs. Application of Funds → Liabilities & Equity represent sources; Assets represent application.
- Accountability to Stakeholders → Creditors and shareholders want to know what is owed and owned before seeing how funds are invested.
- Historical Practice → Indian GAAP and older traditions always placed Liabilities first, and the practice continues.
- Practical Example → Just like a household budget: first you check “Where is the money coming from?” (salary, loan), then “Where is it going?” (rent, furniture, car).
👉 Conclusion: Balance Sheet starts with Liabilities (sources) and then shows Assets (uses), because only after knowing where the money comes from can we explain where it has been spent.
Balance Sheet Ratios
A Balance Sheet by itself shows numbers — assets, liabilities, and equity. But to really understand the strength and weakness of a business, we calculate ratios.
1. Current Ratio
- Formula: Current Assets ÷ Current Liabilities
- Measures liquidity (ability to pay short-term debts).
- Example: 2:1 means the business has ₹2 of current assets for every ₹1 of current liability.
2. Quick Ratio (Acid Test Ratio)
- Formula: (Current Assets – Inventory) ÷ Current Liabilities
- Shows how quickly liabilities can be met without relying on inventory.
- Example: 1:1 means the company is in a safe position.
3. Debt-to-Equity Ratio
- Formula: Total Debt ÷ Shareholders’ Equity
- Measures leverage (debt vs owners’ contribution).
- A high ratio shows dependence on debt; a lower ratio means stability.
4. Proprietary Ratio
- Formula: Shareholders’ Funds ÷ Total Assets
- Indicates how much of the business is funded by owners.
5. Working Capital
- Formula: Current Assets – Current Liabilities
- Shows if the company has enough funds for daily operations.
How Ratios Help in Financial Health
- Liquidity Analysis → Checks short-term financial strength.
- Solvency Check → Indicates ability to pay long-term debts.
- Operational Efficiency → Highlights if funds are locked in stock or receivables.
- Investor Decisions → Ratios guide bankers and investors before giving loans or capital.
- Early Warning Signals → Falling ratios highlight risks and prompt corrective action.
👉 In short: Balance Sheet ratios act like a health report card. They don’t just show numbers; they reveal the business’s financial condition in a meaningful way.
Major Groups in Balance Sheet
A Balance Sheet is divided into two sides – Liabilities and Assets, and each side is further divided into groups.
Groups under Liabilities Side
- Share Capital
- Reserves & Surplus
- Secured Loans
- Unsecured Loans
- Current Liabilities
- Provisions
Groups under Assets Side
- Fixed Assets (Tangible & Intangible)
- Investments
- Current Assets (Cash, Bank, Debtors, Stock)
- Loans & Advances
- Miscellaneous Expenditure (if any)
👉 These groups ensure proper classification of balances, making the Balance Sheet clear, systematic, and standardized.
FAQs on Balance Sheet
Here are some frequently asked questions related to Balance Sheets:
- Q1. What is balance sheet in simple words? A balance sheet is a statement that shows what a business owns (assets) and what it owes (liabilities) at a particular date.
- Q2. How to prepare balance sheet step by step? Start with vouchers, post to ledgers, prepare trial balance, then finalize P&L and finally draft the balance sheet.
- Q3. What is the difference between balance sheet and trial balance? Trial balance is a list of debit and credit balances. Balance sheet is a classified statement of assets, liabilities, and equity.
- Q4. What is the balance sheet vs profit and loss account? Balance sheet shows financial position at a point in time. P&L shows performance (profit or loss) over a period.
- Q5. Can I see balance sheet format with example in Excel? Yes, you can prepare it in Excel easily by tabulating Liabilities and Assets in T-format or vertical format with dummy figures.
- Q6. What is the balance sheet format for Class 12? Class 12 students are usually taught the T-format (Liabilities on left, Assets on right) and sometimes the vertical format for advanced learning.
- Q7. Where can I find balance sheet examples with answers? Many accounting textbooks and practice workbooks provide solved balance sheet examples with dummy figures and step-by-step answers.
Profit & Loss Account
Learn how incomes and expenses are recorded in a P&L with real‑life examples and formats.
Trading Account
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The Balance Sheet is more than just a statement — it is the mirror of a business’s financial health. From understanding assets and liabilities to analyzing ratios and preparing formats in Tally or Excel, mastering the basics is the key to becoming a true accountant.
👉 Remember: Old is Gold. Manual accounting builds the foundation, while technology makes it faster. Together, they ensure accuracy, clarity, and confidence in financial reporting.