Question

Assertion (A): Balance Sheet of a Company is prepared under two broad heads i.e. (i) Equity & Liabilities and (ii) Assets.

Reason (R): In a Company's Balance Sheet, Equity & Liabilities are shown in first part and Assets in the second part.

In the context of the above two statements, which of the following is correct?

Options

• Both (A) and (R) are true, but (R) is not the correct explanation of (A).

• Both (A) and (R) are correct and (R) is the correct explanation of (A).

• Both (A) and (R) are false.

• (A) is true, but (R) is false.

Answer 1

Both (A) and (R) are correct and (R) is the correct explanation of (A).

Explanation:

The Balance Sheet of a company is indeed prepared under two broad heads: (i) Equity & Liabilities and (ii) Assets. The standard practice is to present Equity & Liabilities on the first part (or left side) and Assets in the second part (or right side) of the Balance Sheet. This layout reflects the sources of funds (Equity & Liabilities) and how those funds are utilized (Assets), making the reason a correct explanation of the assertion.