TRIAL BALANCE
Meaning of Balance Sheet
A Balance Sheet is a financial statement that shows the financial position of a business at a particular date. It tells what the business owns (assets), what it owes (liabilities), and the owner’s capital (net worth) at that date.
It is different from accounts like the Trading Account or Profit and Loss Account. Instead of debit and credit sides, it lists assets on one side and capital plus liabilities on the other side.
Items on a Balance Sheet
Assets: These are things the business owns that have value. Examples: Land, buildings, motor vehicles, furniture, stock, cash, debtors.
Liabilities: These are amounts the business owes to other people or organizations. Examples: Long-term loans, bank overdraft, trade creditors, unpaid bills.
Capital / Owner’s Equity: This is the owner’s share of the business, calculated as:
Capital = Assets – Liabilities
Purpose / Uses of a Balance Sheet
- Provides information about the financial position of the business.
- Shows how much the business owns, owes, and the owner’s stake.
- Helps in decision-making for owners, investors, and creditors.
- Shows the working capital (Current Assets – Current Liabilities) and liquidity.
- Forms part of the final accounts of the business.
Classification of Items
- Fixed Assets (Non-Current Assets): Assets that will be used for many years. Examples: Land, buildings, machinery, motor vehicles, furniture.
- Current Assets: Assets that can be converted into cash or used within one year. Examples: Stock, debtors, cash, bank balances.
- Long-term Liabilities (Non-Current Liabilities): Obligations payable after one year. Example: Long-term loan, debenture.
- Current Liabilities: Obligations payable within one year. Examples: Trade creditors, bank overdraft, accrued expenses.
- Capital / Owner’s Equity: The residual value of the business after liabilities are subtracted from assets.
Difference Between Capital and Liabilities
Capital: Money invested by the owner or accumulated profit retained in the business. Represents the owner’s stake.
Liabilities: Money the business owes to outsiders. Represents claims other than the owner’s on the business assets.
Formats of Balance Sheet
- Horizontal (T-form): Assets on the left, capital and liabilities on the right.
- Vertical Form: Assets listed at the top, capital and liabilities listed below.
How to Prepare a Simple Balance Sheet
- List all assets (fixed and current) with their values.
- List all liabilities (long-term and current).
- Calculate capital using: Capital = Assets – Liabilities
- Arrange the statement in horizontal or vertical format.
- Make sure Total Assets = Total Capital + Total Liabilities.
- Clearly write the business name and date.
Example
Question: The following are the balances of Mr. Sunday’s business as at 31st December, 2024:
- Capital: ₦100,000
- Motor Vehicle: ₦40,000
- Furniture: ₦20,000
- Debtors: ₦15,000
- Stock: ₦30,000
- Bank overdraft: ₦10,000
- Cash in hand: ₦5,000
- Trade Creditors: ₦15,000
Required: Prepare a Balance Sheet.
Balance Sheet of Mr. Sunday as at 31st December 2024
| Assets |
₦ |
Capital + Liabilities |
₦ |
| Fixed Assets |
|
Capital |
|
| Motor Vehicle |
40,000 |
Capital |
100,000 |
| Furniture |
20,000 |
|
|
| Current Assets |
|
Current Liabilities |
|
| Debtors |
15,000 |
Bank overdraft |
10,000 |
| Stock |
30,000 |
Trade Creditors |
15,000 |
| Cash in hand |
5,000 |
|
|
| Total Assets |
110,000 |
Total Capital & Liabilities |
110,000 |
Explanation
Total assets of ₦110,000 are equal to total capital and liabilities of ₦110,000. This shows the business is financially balanced.
Example 2
Question:
The following are the balances of Bright Future Enterprises as at 31st December, 2025:
- Capital: ₦150,000
- Land and Buildings: ₦80,000
- Motor Vehicle: ₦50,000
- Furniture and Fittings: ₦20,000
- Stock: ₦40,000
- Debtors: ₦30,000
- Cash in Hand: ₦10,000
- Bank Overdraft: ₦15,000
- Trade Creditors: ₦25,000
Required: Prepare a Balance Sheet for Bright Future Enterprises.
Balance Sheet of Bright Future Enterprises as at 31st December 2025
| Assets |
₦ |
Capital + Liabilities |
₦ |
| Fixed Assets |
|
Capital |
|
| Land and Buildings |
80,000 |
Capital |
150,000 |
| Motor Vehicle |
50,000 |
|
|
| Furniture and Fittings |
20,000 |
|
|
| Current Assets |
|
Current Liabilities |
|
| Stock |
40,000 |
Bank Overdraft |
15,000 |
| Debtors |
30,000 |
Trade Creditors |
25,000 |
| Cash in Hand |
10,000 |
|
|
| Total Assets |
230,000 |
Total Capital & Liabilities |
230,000 |
Explanation:
The total assets of ₦230,000 equal the total of capital plus liabilities ₦230,000. This indicates that Bright Future Enterprises is financially balanced and its resources are properly accounted for.
Summary
- A Balance Sheet is a snapshot of the financial position at a given date.
- It lists assets, liabilities, and capital.
- Assets are classified as fixed or current, while liabilities are long-term or current.
- Capital represents the owner’s stake in the business.
- It is prepared after the trading and profit & loss accounts.
- Ensures that Total Assets = Total Liabilities + Capital.
