Discuss the need of preparing a balance sheet.

Question

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Answer

The needs to prepare a Balance Sheet are given below:

It helps in determining the nature and book value of various assets, such as fixed assets, investments, current assets, etc. at the end of an accounting period.
It helps in ascertaining the nature and amount of various liabilities like long term liabilities, current liabilities, provisions, etc., which a business owes.
It discloses important information about capital invested in a business. The additional capital invested during the accounting period, drawings of the owners and profit (or loss) added to (or deducted from) the capital of the business.
It helps in assessing the solvency of a business.
It discloses the true financial position of a business at a particular point of time.
It lays down the basis for maintaining new books for next accounting period.

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	₹
Opening balance of Bills Payable	5,000
Opening balance of Creditors	6,000
Closing balance of Bills Payable	7,000
Closing balance of Creditors	4,000
Cash paid to Creditors during the year	30,200
Bills Payable discharged during the year	8,900
Returns Outward	1,200
Cash Purchases	25,800

A sum of ₹ 470 received from Ganga was posted to her debit as ₹ 740.
A debit balance of ₹ 550 in the personal account of Mr. John was undercast.
Bills Receivable from Brown for ₹ 3,000 posted to the credit of Bills Payable Account and credited to Brown’s Account.
Goods returned by Mridul ₹ 225 have been entered in the Returns Outward Book.

	₹
Opening Stock	50,000
Net Sales	11,00,000
Net Purchases	6,00,000
Direct Expenses	60,000
Administration Expenses	45,000
Selling and Distribution Expenses	65,000
Loss due to Fire	20,000
Closing Stock	70,000

Purchases Book total had been undercasted by $₹\ 20,000.$
A cheque received from Vasudev for $₹\ 7,800$ had been debited in the Cash Book but not posted in Vasudev’s Personal Account.
Returns Outward Book had been overcasted by $₹\ 10,000.$
Goods returned by Yash Pal worth $₹\ 15,000$ have been entered in Returns Outward Book. However, Yash Pal’s Account is correctly posted.