Question

Main objective of balance sheet is to

Answer 1

The main objectives of preparing balance sheet can be described as follows:

1. To Reveal The Financial Position

2. To Show The Picture Of Assets And Liabilities

3. Information About Debtors And Creditors

4. To Reveal Liquidity Position

5. To Show Solvency Position

6. To Calculate Ratios

Accounting ratios are calculated on the basis of data provided by balance sheet. It helps the management to know the strength and weakness of the business.

7. To Provide Financial Information

Balance sheet provides true and reliable financial information to the management, government, shareholders, lenders etc.

Answer 2

Principal Objective: The main purpose of preparing balance sheet is to know the financial position of the business at a particular date.
Subsidiary Objectives: Though the main aim is to know the exact financial position of the firm at a particular date, yet it serves other purpose as well.

• It gives information about the actual and real owner’s equity. Though the capital of the owner indicates owner’s equity, yet some other liabilities are to be accounted for against it also.
• It helps the firm to make provisions against possible future losses. A provision is made in the form of the Reserves.