Balance Sheet Format as per Companies Act 2013

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What Is a Balance Sheet Format As Per Companies Act 2013?

All companies must maintain a vertical balance sheet as per section 129 of the Companies Act 2013. A vertical balance sheet is several columns beginning with liabilities and capital followed by all the assets.

It gives a snapshot of an organisation's solvency, profitability, and liquidity. There are two ways to present the assets and liabilities accounts: Based on liquidity or permanence. The primary purpose of a vertical balance sheet is for the user to compare different figures for a given time.

Components Of a Balance Sheet Format As Per Companies Act 2013:

Importance of balance sheet

Assets

Current Assets:

Current Assets are the short-term assets of a company that expects to be sold, consumed, used, or exhausted within one year through business operations. They are also known as current accounts and are essential for running a business. They include attributes like cash and cash equivalents, accounts receivables, marketable securities, stock inventory, and other liquid liabilities.
The current ratio indicates a company's liquidity, calculated by dividing existing assets by current liabilities. It reveals the ability of the company to meet short-term obligations. Similarly, the quick ratio measures the power of a company to use its near cash assets to extinguish its current liabilities immediately.

Fixed Assets:

Fixed Assets are long-lived assets, tangible assets, or property that a business cannot convert into cash quickly. Also known as Non-Current Assets, they take a significant amount of time to liquidate and are used to generate revenue during business operations. The company can use them to get credit and attract investors as they hold long-term values.
Fixed Assets are investments and are a solid indicator for the stakeholders that the company has growth potential. They are of two types: Freehold and Leasehold Assets. Freehold assets are purchased with legal rights of ownership and use, while the Owner uses leasehold Assets without the legal right for a particular period.

Liabilities

Current Liabilities:

The current liabilities are the company's short-term financial obligations that the business will settle in cash within the company's operating cycle. The tenure of current liabilities lies within the same year, and the user can pay them using current assets within that calendar year.
Current Liabilities include dividends payable, accounts payable, short-term debts, and income tax. The current liabilities ratio to current assets helps determine the company's ability to repay the short-term debts. It shows the management capabilities of a business, thus grabbing the immediate attention of the investors.

Long-term Liabilities:

Long-term Liabilities are the debts a company owes to third-party creditors that are payable beyond a year. They represent an organization's long-term financial obligations due with tenure over a calendar year and do not require immediate clearance.
The standard operation period is known as the time it takes for a company to turn inventory into cash. Some non-current liabilities include bond payables, deferred tax liabilities, loans against machinery or land, and other long-term mortgages. The long-term liabilities give a better idea of the company's current liquidity and help manage the business.

Shareholder's Equity

The Shareholder's equity, also called net worth, is the business's value after all the liabilities are subtracted from the business's assets. The basic formula is Owner's equity = Assets - Liabilities. It shows how much the company owner has invested in the entity, either by investing money or retaining earnings over time.
The phrase "owner" is used for a sole proprietorship, while "shareholder's equity" is used if the business is incorporated under the companies act 2013. The Owner's equity is an asset of the business and not the company. If the net worth is negative, additional investments must cover the shortfall.