Balance Sheet Reconciliation FAQS

1.What is a Balance Sheet? Why is it prepared?

Balance Sheet is a Statement presenting financial position of the business on a specific date. It has two side one source of funds i.e Liabilities, the left side of the balance sheet and application of funds i.e assets, the right side of the balance sheet. It is prepared after preparing trading and profit and loss account and has balances of real and personal accounts grouped and organized in a proper way as assets and liabilities. It is ready to know the exact financial position of the business on the last date of the financial year.

2.What are adjustment entries? Why are they passed?

Adjustment entries are the entries which are passed at the end of each accounting period to regulate the nominal and other accounts so that correct net profit or net loss is indicated in profit and loss account and balance sheet might also represent the true and fair view of the financial condition of the business.

It is important to pass these adjustment entries before preparing final statements. Otherwise in the absence of these entries the profit and loss statement will be confusing and balance sheet will not show the true financial condition of the business.