Question

What are the advantages of preparing a balance sheet?

Answer 1

1. The main purpose of preparing a balance sheet is to ascertain the true financial position of the business at a particular point of time.
2. It helps in comparing the cost of various assets of the business such as the amount of closing stock, amount due from debtors, amount of fictitious assets, etc.
   Moreover, as assets and liabilities of similar nature are grouped and presented in the balance sheet, a comparative study of these assets and liabilities is facilitated. It helps in comparing the various liabilities of the business.
3. It helps in finding out the solvency position of the firm. The firm’s solvency position is favorable if the assets exceed the external liabilities. The firm’s solvency position is not favorable if the external liabilities exceed the assets.