Accounting Nest | Balance sheet format (2023)

Balance sheet format is the design used to present assets, capital and liabilities of an organization. Balance sheet format can be classified in to different categories based on the criteria used. The criteria used is subjective in the sense that it may be designed to suit a particular purpose or it can be the orthodox way of presenting assets and liabilities of the business. Each format used has its advantages and disadvantages.

a) Classification of balance sheet under balance sheet item presentation criteria

Under this classification, Balance sheet can be presented in two ways;

  1. Vertical format(“T”format)
  2. Horizontal format

Vertical format(“T” format)

The vertical format is also commonly referred to as T format for the structure of the financial statement looks like capital letter “T”. That is, the format has two sides, namely the right hand side and the left hand side. When recording the balance sheet items, there is no law on which side to record assets and the liabilities. But mostly, all assets are recorded on the left hand side be it non-current assets (also known as fixed assets), intangible assets, and current assets. Capital and liabilities are recorded on the right hand side. It should then be noted that the reversal entry is also o key as long as no mixing of items.

Example one

(Video) The BALANCE SHEET for BEGINNERS (Full Example)

Logic co ltd presents its financial position at the end of every year as follows;

Accounting Nest | Balance sheet format (2)

The aboveis a vertical format. Also referred to as T format

Advantages of Vertical format

  1. Simple to understand-this is because all the balance sheet items are straightaway indicated in the financial statement.
  2. Appropriate for small businesses-the T format is suitable especially when the business is small and not dominated by many transactions.
  3. Simple to prepare-one who has basic bookkeeping skills can prepare this type of balance sheet for it is self-guiding that if assets are to be recorded on the left hand side then the rest of the items will be recorded on the right hand side

Disadvantages of vertical format

  1. Fails to meet the International Financial Reporting Standards (IFRS)-Previously, the International Accounting Standards (IAS) were allowing use of T format. But of recent, the IFRS requires the firm to prepare balance sheet using the horizontal format. This disqualifies the T format
  2. Not accommodative-The way the format is, it does not flex to accommodate some point of detail that need to be presented in a proper manner. For example, according to IFRS balance sheet should be in a summarized manner with notes indicated for further explanation. This cannot work with T format.

Horizontal format

This is the opposite of vertical format for the recording of the balance sheet items is done horizontally without taking sides. In other words, prose format is adopted.

Example two

Normal curve co ltd presented to you the balance sheet below.

Accounting Nest | Balance sheet format (3)

Advantages

  1. Looks more presentable than the T format
  2. Flexible to indicate details such as notes for further explanations
  3. More detailed for the presentation can aid one to show working capital component by arranging the current assets and the current liabilities in certain manner which is more understandable

Disadvantages

  1. Not appropriate for decision making by the management for it does not allow for comparison of figures
  2. Difficulty to prepare as compared to T format which guides one better for there are two sides to focus on when recording
  3. Chances of errors such as mixing of the item is high especially for unexperienced accountant or bookkeeper

b)Classification of balance sheet under management reporting requirement criteria

Balance sheet is a tool for decision making by the management. So its format is key in unearthing the issues to be focused on by the board. So the format can either be in two forms

i). Standalone balance sheet format

(Video) Explained | Format of Balance Sheet | Class 11 | Accounts

ii). Comparative balance sheet

Standalone balance sheet format

Stand Alone co ltd provided you with the following trial balance information for two financial periods of 2019 and 2020 as follows;

Example one

Stand Alone co ltd provided you with the following trial balance information for two financial periods of 2019 and 2020 as follows;

Year 2019

Accounting Nest | Balance sheet format (4)

Required

Demonstrate the financial position of 2019 and 2020 for each year separately (ie using standalone approach)

Solution

Year 2019

Accounting Nest | Balance sheet format (5)

Year 2020

Accounting Nest | Balance sheet format (6)

(Video) A Balance Sheet Example

Advantages

  1. Simple to prepare-in other words, it is not complicated to lay it down
  2. Suitable for small organizations
  3. Not costly to prepare
  4. Not time consuming
  5. Does not require an accounting expert

Disadvantages

  1. Not appropriate for decision making by the management for it lacks comparability element
  2. Not suitable for firms with many transactions for it fails to capture all the details at once

Comparative balance sheet

A comparative balance sheet as the name suggests is prepared in a manner to enable the management and even other stakeholders to unearth detailed information especially pertaining to financial performance of the business. As a result, the comparability constituent is incorporated by considering the balance sheet for two consecutive financial periods.

Example two

Refer to example one of Standalone co ltd aforementioned and now prepare a comparative balance sheet

Accounting Nest | Balance sheet format (7)

Advantages

  1. Appropriate for decision making by the management. This is because it is possible to compare the financial performance of one year to a previous one.
  2. It suitable for analytical process such as ratio analysis which can provide in depth information of the business such as liquidity.
  3. It is more acceptable by IFRS of presenting financial statements
  4. It is suitable in forecasting-it is possible to use the data for the two years to predict future expectations

Disadvantages

  1. Complex in presentation for it carries a lot of details which may be confusing
  2. Time consuming especially when prepared manually
  3. Costly for a qualified accountant need to be engaged by the management
  4. Not suitable for small organizations for it is costly and technical to prepare

c)Classification of balance sheet under capital employed criteria

The balance sheet has two perspectives, the financing aspect represented by the capital and liabilities and the investment perspective which is depicted by the assets used by the business. Based on the way of financing the business, balance sheet format can either be classified as;

i). Gross capital balance sheet format

ii). Net Asset balance sheet format

Gross capital balance sheet format

As the name suggests, in the case of gross capital balance sheet format, the balance sheet is prepared in such a manner that both the total owners’ equity and total liability used in financing assets is combined (gross).

Example one

(Video) Prepare The Balance Sheet In Account Form And Report Form With Examples

Young Tuck co ltd presented to you the following balance sheet. Based on the capital employed criteria, what nature of balance sheet is it?

Accounting Nest | Balance sheet format (8)

Answer-gross capital balance sheet and the gross capital employed amounted to $78,624

Advantages

  1. It shows the total debts the business has in a more straight away manner
  2. It compares the total sources of finance used to finance all the assets

Disadvantages

  1. It is not commonly preferred by the owners of the business for it fails to demonstrated the owners wealth in a direct manner
  2. Difficulty to interpret especially if one is not acquitted with book keeping skills

Net Asset balance sheet format

The net asset balance sheet is aimed at portraying the pure capital gotten from the owner’s contribution to finance assets. The assumption is suppose the business closes down, what can be the owner’s claim?

Example two

From the example one above of Young Tuck co. ltd, convert the gross capital balance sheet to net asset balance sheet

Solution

Accounting Nest | Balance sheet format (9)

Advantages

  1. Appropriate when one wants to portray the actual owners’ claim in case the business closes down
  2. It is more preferred as per IFRS. In fact accounting, when we talk of capital employed we refer to net asset approach or format
  3. It distinguishes the two sources of financing hence possible to assess whether the firm is highly geared or otherwise

Disadvantages

  1. Time consuming when preparing
  2. Not easy to interpret
  3. Costly for it requires one to be well skilled in accountancy hence the management need to engage accounting guru to prepare such a statement.

For more on balance sheet please see our below articles:

(Video) How to use Balance Sheet in Household Accounting【Excel Template】

  • Introduction to balance sheet
  • Statement of financial position

Accounting Nest | Balance sheet format (11) About the Author - Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya. He is an enthusiast of teaching and making accounting & research tutorials for his readers.

FAQs

What is the format for a balance sheet? ›

The format of company balance sheet is categorised as classified, comparative, common size and vertical. The old format of the balance sheet, as shown in figure 1 is known as T-shaped or horizontal format. The new format of balance sheet of a company is known as the vertical format (Figure 2).

What are the 3 accounting sheets? ›

The income statement, balance sheet, and statement of cash flows are required financial statements. These three statements are informative tools that traders can use to analyze a company's financial strength and provide a quick picture of a company's financial health and underlying value.

How do you create an accounting sheet? ›

How to make a balance sheet in 8 steps
  1. Step 1: Pick the balance sheet date. ...
  2. Step 2: List all of your assets. ...
  3. Step 3: Add up all of your assets. ...
  4. Step 4: Determine current liabilities. ...
  5. Step 5: Calculate long-term liabilities. ...
  6. Step 6: Add up liabilities. ...
  7. Step 7: Calculate owner's equity.
10 Dec 2020

What are the 5 elements of balance sheet? ›

The main elements of financial statements are as follows:
  • Assets. These are items of economic benefit that are expected to yield benefits in future periods. ...
  • Liabilities. These are legally binding obligations payable to another entity or individual. ...
  • Equity. ...
  • Revenue. ...
  • Expenses.
2 Apr 2022

What are the 2 forms of balance sheet? ›

Balance Sheet Formats

Standard accounting conventions present the balance sheet in one of two formats: the account form (horizontal presentation) and the report form (vertical presentation).

What are the 5 books of accounts? ›

As per rule 6F, cash books, ledgers, bills/receipts (Bills), journals and daily cash registers come under books of accounts.

What are the 5 categories of accounts? ›

The chart of accounts organizes your finances into five major account types, called accounts: assets, liabilities, equity, revenue, and expenses.

What are the 3 types of accounts? ›

3 Different types of accounts in accounting are Real, Personal and Nominal Account. Real account is then classified in two subcategories – Intangible real account, Tangible real account. Also, three different sub-types of Personal account are Natural, Representative and Artificial.

How do 3 statements link together? ›

Net income from the bottom of the income statement links to the balance sheet and cash flow statement. On the balance sheet, it feeds into retained earnings and on the cash flow statement, it is the starting point for the cash from operations section.

Can Excel be used for accounting? ›

Microsoft Excel is an invaluable tool for accountants to make numerous schedules and calculations that traditional bookkeeping software doesn't provide. It comes with functions for performing complex mathematical calculations and also supports many add-ons for activities like financial forecasting and modeling.

Can I use Excel for bookkeeping? ›

Excel has several helpful features and functions that can help you create a small business bookkeeping system that works. You can enter and categorize transactions through Excel, create various bookkeeping templates, track invoices, and much more.

Does Excel have an accounting template? ›

These financial records will need to be constantly added into an up-to-date company ledger, which is essentially your master accounting template. Excel does offer a basic, pre-built company ledger template.

Is cash an asset or equity? ›

In short, yes—cash is a current asset and is the first line-item on a company's balance sheet. Cash is the most liquid type of asset.

What are the 6 basic financial statements? ›

The 5 types of financial statements you need to know
  • Income statement. Arguably the most important. ...
  • Cash flow statement. ...
  • Balance sheet. ...
  • Note to Financial Statements. ...
  • Statement of change in equity.

What is the basic accounting model? ›

The accounting equation is a basic principle of accounting and a fundamental element of the balance sheet. The equation is as follows: Assets = Liabilities + Shareholder's Equity.

What are the 4 types of balance? ›

There are four main types of balance: symmetrical, asymmetrical, radial, and crystallographic.

Are there 3 types of balance? ›

There are three different types of balance: symmetrical, asymmetrical and radial. The human figure in this diagram is symmetrically balanced; the same on the left and right sides of a central axis.

What are the 4 types of accounts? ›

What Are Four Types of Bank Accounts?
  • Checking Account. Think of a checking account is as your “everyday account.” It's a place to keep the money you use to pay your bills or cover everyday expenses. ...
  • Savings Account. ...
  • Money Market Account. ...
  • Certificate of Deposit (CD)
22 Feb 2022

What is called ledger? ›

A ledger in accounting refers to a book that contains different accounts where records of transactions pertaining to a specific account is stored. It is also known as the book of final entry or principal book of accounts. It is a book where all transactions either debited or credited are stored.

What are the 4 principles of IFRS? ›

IFRS requires that financial statements be prepared using four basic principles: clarity, relevance, reliability, and comparability.

What are the 6 types of accounts? ›

Types of accounts
  • Asset accounts are used to recognize assets. ...
  • Liability accounts are used to recognize liabilities. ...
  • Equity accounts are used to recognize ownership equity. ...
  • Revenue accounts are used to recognize revenue. ...
  • Expense accounts are used to recognize expenses. ...
  • Gain accounts are used to recognize gains.

What type of account is cash? ›

A cash account is a type of brokerage account in which the investor must pay the full amount for securities purchased. An investor using a cash account is not allowed to borrow funds from his or her broker-dealer in order to pay for transactions in the account (trading on margin).

What is rules of accounting? ›

Take a look at the three main rules of accounting: Debit the receiver and credit the giver. Debit what comes in and credit what goes out. Debit expenses and losses, credit income and gains.

What is accounting cycle? ›

The accounting cycle is the process of accepting, recording, sorting, and crediting payments made and received within a business during a particular accounting period.

What are journal entries? ›

A journal entry is a record of the business transactions in the accounting books of a business. A properly documented journal entry consists of the correct date, amounts to be debited and credited, description of the transaction and a unique reference number.

What are the types of ledgers? ›

The three types of ledgers are: General ledger. Sales ledger or debtor's ledger. Purchase ledger or creditor's ledger.

What are the two kinds of ledgers? ›

General Ledger – General Ledger is divided into two types – Nominal Ledger and Private Ledger. Nominal ledger gives information on expenses, income, depreciation, insurance, etc. And Private ledger gives private information like salaries, wages, capitals, etc.

What is standard chart of accounts? ›

In accounting, a standard chart of accounts is a numbered list of the accounts that comprise a company's general ledger. Furthermore, the company chart of accounts is basically a filing system for categorizing all of a company's accounts as well as classifying all transactions according to the accounts they affect.

What is cash book? ›

A cash book is a financial journal that contains all cash receipts and disbursements, including bank deposits and withdrawals. Entries in the cash book are then posted into the general ledger.

How many books are there in 12 accounts? ›

Two textbooks are prescribed for accountancy class 12. Accountancy textbook Not-for-Profit Organization and partnership Accounts for Class 12th and Accountancy textbook Company Accounts and Analysis of Financial Statements for Class 12th for English medium students.

What are the 3 types of statement? ›

What Are the Main Types of Financial Statements? The three main types financial statements are the balance sheet, the income statement, and the cash flow statement.

Which of the 3 financial statements is most important? ›

The most important financial statement for the majority of users is likely to be the income statement, since it reveals the ability of a business to generate a profit. Also, the information listed on the income statement is mostly in relatively current dollars, and so represents a reasonable degree of accuracy.

What are the three basic statements? ›

The balance sheet, income statement, and cash flow statement each offer unique details with information that is all interconnected. Together the three statements give a comprehensive portrayal of the company's operating activities.

What is the formula for accounting? ›

Also known as the balance sheet equation, the accounting equation formula is Assets = Liabilities + Equity. This equation should be supported by the information on a company's balance sheet.

Why do accountants love Excel? ›

Excel offers great help for large and complex accounting. With 'macros' feature, you can create automated calculations and other actions. It takes care of doing all the heavy calculation, data entry or creating datasets with the click of a button. You can also save it and apply as and when you need.

What Excel formulas are used in accounting? ›

Essential Excel Formulas for Accounting
  • Compound Interest: ...
  • Straight Line Depreciation (SLN): ...
  • Decline Balance Depreciation (DB): ...
  • Variable Declining Balance (VDB): ...
  • Sum-of-Years' Digits Depreciation(SYD): ...
  • XNPV: ...
  • XIRR: ...
  • MIRR:

Do accountant use spreadsheets? ›

While small business owners and those new to accounting can find it difficult to track payments, spreadsheets offer a simple solution. Spreadsheets are commonly used to analyse money that has been spent and income that has been received.

Which software is best for accounting? ›

The 5 Best Accounting Software for Small Businesses of 2022
  • Best Overall: QuickBooks Online.
  • Best for Micro-Business Owners: Xero.
  • Best for Service-Based Businesses: FreshBooks.
  • Best for Part-Time Freelancers: QuickBooks Self-Employed.
  • Best Free Software: Wave.

Is QuickBooks better than Excel? ›

QuickBooks Online is much easier to set up and use than Excel, which requires some knowledge of formulas. QuickBooks Online is a double-entry accounting system that automates most processes, saving time. You'll need a thorough understanding of bookkeeping systems to customize Excel to keep your books.

Which Microsoft Office is used for accounting? ›

Microsoft Office Excel ships with templates for creating budgets, cash-flow statements and profit-and-loss statements, which are some of the most basic documents used in accounting.

What is the most common format for balance sheets? ›

Classified Balance Sheet

It is the most common type of balance sheet presentation, and does a good job of consolidating a large number of individual accounts into a format that is eminently readable.

How is the balance sheet arranged? ›

As the heading shows, the statement is called “Balance Sheet”. It summarises on the one side—the right hand side—the assets of the business and, on the left hand side the liabilities of the business including what the business owes to the proprietor, viz., capital.

What are the 3 key elements that make up a balance sheet? ›

A company's balance sheet is a snapshot of its financial position at a specific point in time. The balance sheet lists everything that the company owns (its assets), everything that it owes (its liabilities), and shareholder equity.

What is a perfect balance sheet? ›

A strong balance sheet will utilise an optimal level of working capital (current assets less current liabilities) to fund the business' core operations, with the end goal of driving revenue and subsequently profit. It's important that a business understands what that optimal level is.

Which comes first in balance sheet? ›

Assets are on the top or left, and below them or to the right are the company's liabilities and shareholders' equity. A balance sheet is also always in balance, where the value of the assets equals the combined value of the liabilities and shareholders' equity.

What order should assets be listed? ›

Current assets are usually listed in the order of their liquidity and frequently consist of cash, temporary investments, accounts receivable, inventories and prepaid expenses. Cash is simply the money on hand and/or on deposit that is available for general business purposes.

Why is cash listed first on a balance sheet? ›

Cash is listed first on the balance sheet because it is the asset most readily available to pay off debt or use in operations. Cash is also one of the assets that most often grows legs and walks away. Therefore, it is important that any business protect its cash. It does so through internal control procedures.

What's another name for balance sheet? ›

Overview: The balance sheet - also called the Statement of Financial Position - serves as a snapshot, providing the most comprehensive picture of an organization's financial situation. It reports on an organization's assets (what is owned) and liabilities (what is owed).

Is cash a balance sheet or income statement? ›

The balance sheet is a financial statement comprised of assets, liabilities, and equity at the end of an accounting period. Assets include cash, inventory, and property.

What are the four purposes of a balance sheet? ›

The purpose of the balance sheet
  • Evaluate Ability to Pay Obligations. There are several subsets of information that can be used to gain an understanding of the short-term financial status of an organization. ...
  • Evaluate Borrowing Level. ...
  • Evaluate Ability to Pay Dividends. ...
  • Evaluate Asset Value.
23 May 2022

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