A basic understanding of finance is very relevant to our lives. In both the public and private sectors, financial competence and understanding are essential for most managers and executives, although many of them will have received no formal training.


Knowledge of fiscal and financial responsibility is imperative for executives. Not only must they know how to manage and deploy capital in the organisation, but also it is essential that they have a knowledge and understanding in global terms.


As a business executive or an interested party while dealing with other business firms, you would like to know their financial viability. Balance Sheet is one such financial statement that will help you to check the financial health of a firm. It has two sides, Liabilities payable and Assets owned. The total of these two sides is always equal. If it is so, how can one judge that the financial health of a business firm/company is better or more sound than the other? Given innumerable transactions, how does it happen that the two sides of a Balance Sheet always tally? The subject matter of this chapter is designed to provide answers to all these and other perplexing questions.

To help you understand this subject, we have adopted a simple methodology; descriptive approach is by and large avoided. This apart, we believe that understanding of this subject is very easy as we deal with 'money', and people are wise in money matters whether they know the subject or not. For instance, do you need an indepth knowledge of accounting to know that Cash Inflows are Receipts; Cash Outflows are Payments; Sales generate Revenues/Income; and Expenses are incurred to run the business?