October 18, 2018

Basics of Balance Sheet

Basics of Balance Sheet (B/S)

A Balance Sheet contains the sources of funds for a company and application of those funds at any point of time. As is logical, sources of funds and their application must match at aggregate level, hence, both the sides of the balance sheet must match at all times (as also the name suggests).

Sources of Funds (Liabilities): A company has two primary sources of funds, owners’ funds or equity capital and borrowed funds or debt capital. Let us see each one of them in brief below:

Application of Funds (Assets): This is the right side of the Balance Sheet, where details of assets are given. A company can have fixed long term assets like plant and machinery or short term assets like investments in liquid funds or inventory. Let us see in detail the two broad heads of Application side of the balance sheet.

Given below is a sample balance sheet: