Vidhu Duggal & Co....
3 mistakes you should avoid in your Balance Sheet

05 Nov, 2024

By Vidhu

3698 Likes

3 mistakes you should avoid in your Balance Sheet

  • Ignoring Accrued Liabilities and Expenses

Impact: Ignoring accrued expenses results in understated liabilities, giving a false impressionof higher equity or lower debt.

How to avoid: Ensure that all accrued liabilities are recognized in the balance sheet, even if they haven’t been paid yet. Review all pending expenses regularly, such as payroll, interest, and taxes

  • Overlooking Contingent Liabilities

Impact: Overlooking contingent liabilities can mislead stakeholders about the company’s actual risk exposure, leading to flawed financial analysis and decision- making.

Avoidance: Always assess potential future liabilities and disclose them in the notes to the financial statements. Keep track of ongoing lawsuits, warranties, or any legal obligations that could arise.

  • 3. Overlooking Prior Period Items like incomes & expenses

Impact: Ignoring prior period incomes & expenses results in understatement or overstatement of Income in the financials.

Avoidance: Make sure to disclose it separately in Profit & loss account to ensure the correct reporting & analysis of financial statement of the year.