A Balance Sheet is a statement prepared to ascertain the true position of assets and liabilities as on a particular date. It is prepared at the end of the accounting period, after the preparation of Trading and Profit and Loss account. It is called Balance sheet, as it is a statement prepared with the balance of accounts left after the preparation of Trading and Profit and Loss account.

It gives clear picture of the financial position of the concern. Accounts of Assets, liabilities and Owner’s equity are shown in the Balance Sheet. Items of liabilities and capital are shown on the left side, known as “liabilities” side and the item of assets are shown on the right-hand side, known as “Assets” side of the balance sheet. 

Balance sheet is prepared with the following objectives.

1. To ascertain the financial position of the concern.

2. To ascertain the nature of assets and liabilities of the firm.

3. To know about the source and application of funds.

4. To ascertain working capital as on the date of Balance sheet.

5. To ascertain the excess of assets over external liabilities.