Question

Explain the methods of marshalling of a Balance Sheet.

Answer 1

A balance sheet is created to show the financial situation of a business. The goal of a balance sheet is to show a company's accurate financial situation on a specific date. Assets and liabilities should be presented in a way that allows for a quick and easy assessment of the company's financial status. The balance sheet shows both assets and liabilities. This type of organisation is known as balance sheet marshalling. There are a few methods for marshalling:

1. Liquidity Preference Method
2. Permanence Preference Method 

The processes for preparing a balance sheet are briefly described below:

1. Liquidity Preference Method: This strategy arranges assets and liabilities based on liquidity. The more liquid the assets, the earlier they appear. The sooner liabilities are paid off, the earlier they are shown. This strategy is used by sole proprietorship and partnership businesses. This method requires a balance sheet in the following format:

BALANCE SHEET as at ...
Liabilities	Amount (₹)	Assets	Amount (₹)
Current Liabilities:		Current Assets:
Outstanding Expenses		Cash in Hand
Income Received in Advance		Cash ·at Bank
Bills Payable		Bills Receivable
Sundry Creditors		Sundry Debtors
Bank Overdraft		Prepaid Expenses
Long Term Liabilities:		Accrued Income
Long Term Loan		Stock in Hand
Loan on Mortgage		Investments
Debentures		Fixed Assets:
Owner's Equity:		Furniture and Fittings
Capital		Plant and Machinery
Reserves/Retained Profits		Buildings
		Goodwill

2. Permanence Preference Method: The Permanency Preference Method arranges assets and liabilities in the balance sheet based on their permanence. Permanent assets and liabilities are revealed earlier than temporary ones. Joint stock firms use this strategy, which results in the balance statement as follows:

BALANCE SHEET as on ...
Liabilities	Amount (₹)	Assets	Amount (₹)
Owner's Equity:		Fixed Assets:
Capital		Goodwill
Reserves/Retained		Land and Buildings
Profits		Plant and Machinery
Long-Term Liabilities:		Furniture and Fixtures
Debentures		Motor Vehicles
Loans on Mortgage		Investments
Current Liabilities:		Current Assets:
Bank Overdraft		Stock in Hand
Sundry Creditors		Accrued Income
Income Received in Advance		Prepaid Expenses
Outstanding Expenses		Sundry Debtors
Contingent Liabilities		Bills Receivable
		Cash at Bank
		Cash in Hand
		Fictitious Assets:
		Preliminary Expenses