Balance Sheet | Bank Exam Preparation

Balance Sheet

Introduction of Balance Sheet

Balance sheet is that financial statement which is able to present assets, capital and liabilities of organization at any point of time. It is not a ledger but a statement only. It is description of source & use of fund. It is major component of financial statement as well as final output of accounting which is used to provide information to the stakeholder. It shows financial status of the firm, so balance sheet is known as financial position indicator of the firm.

Method of Making Balance Sheet

• Before making balance sheet we have to prepare income statement in order to find out net profit/loss or surplus/deficit.
• If there is provision of regulator than it is mandatory to use format prescribed by such entity otherwise format of accounting standard is applicable to make balance sheet.
• All capital nature transaction should be classified as per liquidity base or rigidity base for the preparation of balance sheet.
• Organization can use traditional “T” format or modern vertical format.

Core element of balance sheet with example are presented below,
Balance Sheet  of ABC firm as on 31^st ashadh 2075

Share capital includes: Equity share, preference share, share premium
Reserve and surplus includes: General reserve, surplus, fund
Long term debt includes: Debenture, mortgage, bond, public deposit, bank loan
Current liabilities includes: Creditors, payable, outstanding expenses, dues, to be pay, advance income, bank overdraft, provision for tax, provision for dividend
Fixed assets includes: Tangible assets like land, building, plant, machineries, furniture & fixtures, vehicles, Intangible assets like goodwill, patent, copyright, trademark, franchises.
Investment includes: Purchase of share, debenture, t-bill, government bond etc.
Current assets includes: Debtors (book debt), inventory (Closing stock), cash, bank, receivable, prepaid (advance paid), marketable securities,
Fictitious assets includes: Preliminary expenses, discount on issue of share debenture,  deferred expenditure, underwriting commission

Balance Sheet in Bank and Financial Institution

• Before making balance sheet we have to prepare income statement in order to find out net profit/loss or surplus/deficit.
• In Nepal Bank and FIs prepare balance sheet as per unified directive no 4, issued by central bank for licensed bank and FIs.
• All elements of assets side should be classified as per liquidity base but rigidity base for the elements of capital and liabilities of balance sheet. So, it is prepared under hybrid concept.
• Bank use vertical format for the preparation of balance sheet.

Core element of bank balance sheet with example are presented below,
Balance Sheet Format of Commercial Bank Balance Sheet:
Balance sheet of XYZ  bank as on 31^st Ashad 2075

Importance of Balance Sheet

• To Present net worth of the firm
• To provide information to the stakeholder
• To know about solvency capacity of the organization
• To show financial status or health or position of the firm
• To support for auditing activities
• To maintain transparence and accountability
• To maintain financial discipline
• For the strengthens of internal control system
• To present capital nature transaction
• To calculate ratio of the firm
• To follow rules and regulation and to avoid legal punishment
• To maintain corporate governance

Limitation of Balance Sheet

• Lack of independency because balance sheet depends upon trial balance
• Difficult to adjust additional information which are given outside of the trial balance
• Difficult to prepare balance sheet under cash basis accounting concept
• Marshaling of transaction is complex task
• Lack of consistency because it is art of presenting financial transaction
• Difficult to prepare and tedious
• Time consuming and expensive method
• Can’t prepare under single entry system
• Lack of qualitative system