Benefits or advantages of preparing balance sheet are described as follows:
1. Helps To Obtain The Financial Position
Balance sheet helps to ascertain the financial position of the company by disclosing the information about assets, capital and liabilities. Current financial position of the business can be obtained with the help of data and information about assets and liabilities by preparing balance sheet.
2. Helps To Calculate Financial Ratios
Balance items or data are very essential to calculate different financial ratios like liquidity ratio, current ratio and acid-test ratio. Financial ratios help to measure profitability, liquidity and sustainability of the company.
3. Helps To Disclose The Solvency
Balance sheet provides detailed information about assets and liabilities for a particular accounting period. It helps to understand the solvency position of the company.
4. Helps To Borrow Loans
Balance sheet provides information about financial health of the company. It discloses the solvency position and net worth of the business. These information are helpful to borrow loans from banks, other financial institutions or outsiders.
5. Provides Information About Debtors And Creditors
Balance sheet provides up to date financial aspects of the business. It provides full information about trade debtors and trade creditors at a given period.
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6. Helps To Ascertain The Owners' Equity
Another key benefit of balance sheet is that it provides information regarding owners' equity and capital at a given period.
7. Helps In Decision Making
Balance sheet helps to compare current financial status of the company with the financial position of previous period. So, the current progress can be ascertained and future plans and decisions can be make properly.
