Question 10 of 26intermediate💡 UnderstandShort Answer3 marks

What is a balance sheet. What are its characteristics?

Correct Answer

Balance Sheet is a statement prepared for showing the financial position of the business summarising its assets and liabilities at a given date. It is prepared at the end of the accounting period after the trading and profit and loss account have been prepared.

The main characteristics of a Balance Sheet are:

  1. It is a statement, not an account.
  2. The totals of assets and liabilities are always equal.
  3. The information contained is true only on that date.
  4. Assets reflect debit balances and liabilities (including capital) reflect credit balances.
  5. Assets and liabilities are marshalled in order of liquidity or in order of permanence.
Exercise: Questions for Practice - Short Answers | Q: 4 | (Page 34)
For More Understanding

Explanation

The answer directly uses the definition and characteristics mentioned in the textbook context. The definition covers what a balance sheet is and when it is prepared. The characteristics are extracted from multiple sections - that it's a statement (not an account), totals are equal, information is date-specific, shows debit/credit balances, and items are marshalled in a specific order.

Solution Steps

  1. Step 1: Define Balance Sheet using the textbook definition - a statement showing financial position with assets and liabilities at a given date

  2. Step 2: List characteristics extracted from context - statement (not account), equal totals, date-specific information, debit/credit balances, marshalling order

  3. Step 3: Format as a student-friendly exam answer with key terms bolded

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