Balance sheet refers to a statement that reveals the financial position of the business on a given date. That is, the balance sheet is a description of the merchant’s economic situation.

In simple words, the statement of assets, liabilities, and capital of a business or organization at a given point of time is called a balance sheet. It is usually made at the end of the financial year of the company or organization. The balance sheet is prepared after a Profit and Loss Account.

There are two sides in the balance sheet, one is the liability and the other is the asset side. On the liability side, all the liabilities of the business are written like- Capital, Creditor, Bank loan etc. And in the property side, all the assets of the business are written such as Cash, Debtors, Machines, Furniture, Plant, etc.

In the balance sheet, the sum of the two sides of the Assets and Liability should be equal. If the sum of the two sides is not equal then it means that there has been a mistake in the journal entries or in the lasering.

A balance sheet is a report from which complete information about the assets and liabilities of a trader can be obtained on a particular date. Its purpose is to tell the right financial condition of the owner of the company in a given time so that he can determine the future work of his company in future.

The balance sheet has two sides, the left side is called the Capital And Liabilities and the right side is called the Assets And Properties.

Profit And Loss Account has the following objectives:

  • The main objective of preparing a profit and loss account is to get the net profit or loss of the business.
  • Profit and loss account is prepared every year, thus comparing the current year’s profit and loss with the profit and loss of the previous years, the actual situation of the business is known.
  • Expenditure on current profit and loss account can be compared to the expenditure of previous years, similarly, the percentage of net expenditure for each expenditure can also be determined. Excess of the amount of expenditure can be controlled.


Since only gross profit or gross loss is known from the trading account, it is necessary to create a profit-loss account.