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Accounting
How to Read a Balance Sheet — A Plain-Language Guide for Indian Learners
By Aditya Gupta · March 2025 · 10 min read
What is a Balance Sheet?
A Balance Sheet (also called a Statement of Financial Position) is one of the three core financial statements — alongside the P&L Statement and Cash Flow Statement. It shows what a company owns (assets), what it owes (liabilities), and what belongs to shareholders (equity) — all at a specific point in time.
The fundamental equation: Assets = Liabilities + Shareholders’ Equity
In India, listed companies (on NSE and BSE) present their balance sheet as per Ind AS (Indian Accounting Standards) — the Indian version of IFRS. Unlisted private companies follow the Companies Act 2013 format.
The Two Sides of a Balance Sheet
ASSETS (What you OWN)
Non-Current Assets:
- Property, Plant & Equipment (PP&E)
- Intangible Assets (goodwill, patents)
- Long-term Investments
- Deferred Tax Assets
Current Assets:
- Cash & Cash Equivalents
- Trade Receivables (Debtors)
- Inventories
- Short-term Investments
LIABILITIES + EQUITY (How it’s FUNDED)
Shareholders’ Equity:
- Share Capital
- Reserves & Surplus
- Retained Earnings
Non-Current Liabilities:
- Long-term Borrowings
- Deferred Tax Liabilities
Current Liabilities:
- Trade Payables (Creditors)
- Short-term Borrowings
- GST Payable
- TDS Payable
Key Ratios to Extract from a Balance Sheet
| Ratio | Formula | What it Tells You |
|---|---|---|
| Current Ratio | Current Assets / Current Liabilities | Liquidity — ability to pay short-term debts. Ideal: 1.5–2.0 |
| Debt-to-Equity | Total Debt / Shareholders’ Equity | Leverage — how much debt vs own funds. Lower is safer. |
| Working Capital | Current Assets – Current Liabilities | Day-to-day operational liquidity. Positive = healthy. |
| Return on Equity | Net Profit / Shareholders’ Equity × 100 | How efficiently equity generates profit. Higher = better. |
📚 Learn More: Our Accounting for Beginners course covers balance sheet preparation step-by-step with Indian examples — including GST and TDS entries.
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