Balance Sheet: Assets, Liabilities & Net Worth

1. What is a Balance Sheet?

A Balance Sheet is a structured financial statement prepared on a specific date (usually the final day of the financial year, 31st March) showing the financial position of a business by listing:

• Everything the business owns → Assets
• Everything the business owes to outsiders and owners → Liabilities & Capital

Crucial Distinction for Exams: A Balance Sheet is a Statement, NOT an Account!

• It does NOT have “Debit” (Dr.) or “Credit” (Cr.) headers.
• The words “To” and “By” are never used in a Balance Sheet!
• It is prepared “As on” a particular date (a snapshot in time), unlike Trading and P&L Accounts which are prepared “For the year ended…” (a video covering 365 days).

2. Fundamental Equation of the Balance Sheet

Total Assets = Total Liabilities + Owner’s Capital (Net Worth)

Or rewritten to define owner’s net equity:

Net Worth (Capital) = Total Assets - Total Outside Liabilities

3. Classification of Assets

Assets represent economic resources owned by the business that will generate future monetary value:

                         Classification of Assets
                                    |
         +--------------------------+--------------------------+
         |                          |                          |
    Current Assets             Fixed Assets            Fictitious Assets
  (Short-term / Liquid)    (Long-term / Tangible &   (Deferred Revenue / Losses)
                            Intangible Productive)

1. Current Assets: Assets held for a short duration that are either in the form of cash or expected to be converted into cash within 12 months in the normal operating cycle:
   • Cash in Hand & Bank Balances
   • Marketable Securities / Short-Term Investments
   • Sundry Debtors / Trade Receivables
   • Bills Receivable
   • Closing Stock (Inventory)
   • Prepaid Expenses & Accrued Incomes
2. Fixed Assets (Non-Current Assets): Long-term assets acquired for continuing use in operations to generate revenue, not intended for resale:
   • Tangible Fixed Assets (Physical): Land, Freehold Buildings, Plant & Machinery, Delivery Vans, Office Computers, Furniture.
   • Intangible Fixed Assets (Non-Physical): Goodwill, Patents, Trademarks, Copyrights, Software Licenses.
3. Fictitious Assets: Not real physical assets; they are unamortized past deferred revenue expenses or accumulated past losses awaiting write-off (e.g., Preliminary expenses, Heavy advertisement suspense, Debit balance of Profit & Loss A/c).

4. Classification of Liabilities

Liabilities are claims and obligations against the assets of the enterprise:

1. Owner’s Capital (Net Worth / Internal Equity): The amount invested by the owners, plus accumulated reserves and undistributed net profits, minus personal drawings.
2. Long-Term / Non-Current Liabilities: Debts payable after a period longer than 12 months (e.g., Bank Term Loans, Mortgage Loans, Debentures).
3. Current Liabilities: Debts and obligations due for settlement within the next 12 months:
   • Sundry Creditors (Trade Payables)
   • Bills Payable
   • Bank Overdraft / Cash Credit Limit
   • Outstanding Expenses (Unpaid Wages/Rent)
   • Advance Income Received from Customers

5. Marshalling of Assets and Liabilities

Marshalling refers to the specific sequential order in which assets and liabilities are arranged and presented in the Balance Sheet.

There are two distinct orders of marshalling:

6. Standard Format of a Balance Sheet (Order of Liquidity)

Balance Sheet of M/s [Business Name] as on 31st March, 2026

+-----------------------------------+------------+-------------------+------------+
| Liabilities                       | Amount (₹) | Assets            | Amount (₹) |
+-----------------------------------+------------+-------------------+------------+
| **Current Liabilities:**          |            | **Current Assets:**|           |
| Bank Overdraft                    |     15,000 | Cash in Hand      |      8,000 |
| Bills Payable                     |     10,000 | Cash at Bank      |     35,000 |
| Sundry Creditors                  |     32,000 | Short-Term Inv.   |     15,000 |
| Outstanding Rent                  |      3,000 | Bills Receivable  |     12,000 |
|                                   |            | Sundry Debtors    |     40,000 |
| **Long-Term Liabilities:**        |            | Closing Stock     |     45,000 |
| 10% Bank Loan                     |     50,000 | Prepaid Insurance |      2,000 |
|                                   |            |                   |            |
| **Capital (Owner's Equity):**     |            | **Fixed Assets:** |            |
| Opening Capital          1,50,000 |            | Furniture         |     25,000 |
| Add: Net Profit            48,000 |            | Plant & Machinery |     60,000 |
| Less: Drawings           (12,000) |   1,86,000 | Land & Building   |     80,000 |
|                                   |            | Goodwill          |     14,000 |
+-----------------------------------+------------+-------------------+------------+
| TOTAL                             |  ₹2,96,000 | TOTAL             |  ₹2,96,000 |
+-----------------------------------+------------+-------------------+------------+

7. Syllabus Activity 2: Personal Family Balance Sheet & Net Worth Calculation

As a practical BBA activity, every student should construct a personal financial statement for their household to evaluate their family’s true financial standing.

The Net Worth Formula:

Family Net Worth = Total Personal Assets - Total Family Liabilities

Sample Family Balance Sheet as of October 2026

+-----------------------------------------------+-----------------------------------------------+
| Family Liabilities (What We Owe)              | Family Assets (What We Own)                   |
+------------------------------------+----------+------------------------------------+----------+
| Item                               |   Amount | Item                               |   Amount |
+------------------------------------+----------+------------------------------------+----------+
| Housing Loan from SBI              | 22,00,000| Residential Apartment in Indore    | 45,00,000|
| Car Auto Loan from HDFC            |  3,50,000| Family Car (Hyundai Creta)         |  9,00,000|
| Outstanding Credit Card Dues       |    45,000| Gold & Diamond Jewellery           |  7,50,000|
| Personal Loan                      |  1,20,000| Mutual Funds & Equity Shares       |  6,20,000|
|                                    |          | Bank Fixed Deposits (FDs)          |  4,00,000|
|                                    |          | Savings Bank Account Balance       |  1,40,000|
|                                    |          | Cash at Home in Locker             |    35,000|
|                                    |          | Household Appliances & Electronics |  2,50,000|
|                                    |          | Public Provident Fund (PPF)        |  3,80,000|
|                                    |          |                                    |          |
| **Total Family Liabilities**       |**₹27,15,000**| **Total Family Assets**        |**₹79,75,000**|
+------------------------------------+----------+------------------------------------+----------+

Calculation of Family Net Worth:

Total Family Assets = ₹79,75,000 Total Family Liabilities = ₹27,15,000

Family Net Worth = ₹79,75,000 - ₹27,15,000 = ₹52,60,000

Key Financial Insight: A positive net worth of ₹52,60,000 demonstrates that the household is financially stable and solvent; its total assets far exceed its debts.

8. Summary & Quick Revision Checklist

• The Balance Sheet is a statement (not an account) showing the financial position on a given date.
• No “Dr./Cr.” and no “To/By” language is used.
• Total Assets = Total Liabilities + Capital
• Marshalling: Arrangement of items in the order of Liquidity (cash first) or Permanence (land first).
• Net Worth = Total Assets - Total Outside Liabilities
• Closing Capital = Opening Capital + Net Profit - Drawings