Liabilities may be classified according to their nature as follows:
a) Fixed or long-term liabilities:
The Liabilities which are to be repaid after one year or more are termed as long-term liabilities. These include public deposits, long-tern loans, etc.
b) Current or short-term liabilities:
(i) The liabilities which are expected to be paid within the normal operating cycle or one year are termed as current or short-term liabilities.
(ii) These include bank overdraft, creditors, bills payable, outstanding expenses, etc.
c) Contingent Liabilities:
(i) These are the liabilities which are not certain at the time of preparation of balance sheet. These Liabilities mayor may not occur.
(ii) These are the liabilities which will become payable only on the happening of some specific. event which itself is not certain, otherwise these need not be paid

According to the nature of assets, they may be classified into the following:
a) Fixed Assets: Fixed assets are those assets which are acquired or constructed for continued use in the business and last for many years such as land and building, plant and machinery, motor vehicles, furniture, etc.
b) Current Assets:
(a) Current assets are those assets which are either in the form of cash or can be easily converted into cash in the normal course of business or within one year.
(b) Current assets include cash in hand, cash at bank, short-term investments, bills receivable, debtors, prepaid expenses, accrued income, closing stock, etc.
c) Liquid Assets:
Liquid assets are the assets which are either in the form of cash or which can be immediately converted into cash within a very short period of time, such as cash at bank, bills receivable, short-term investments, debtors and accrued incomes.
d) Wasting Assets:
These are the assets which get exhausted gradually in the process of excavation.
Examples: mines and quarries.
e) Investments:
Amount invested outside the business in shares, debentures, bonds and other securities is called investments.

The following are the characteristics of a balance sheet.
(i) A balance sheet is a part of the final accounts. However, the balance sheet is a statement and not an account
(ii) A balance sheet is a summary of the personal and real accounts, which have balances. Personal and real accounts having debit balances are shown on the right hand side known as asset side, where as personal and real accounts having credit balances are shown on the left hand side known as liabilities side.
(iii) The totals of the two sides of the balance sheet must be equal. If the totals are not equal, it indicates existence of error.
(iv) Balance sheet is prepared on a particular date and not for a fixed period. It gives the balances only for the date on which it is prepared.
(v) It shows the financial position of the business according to the going concern concept.

The purposes of preparing a balance sheet are as follows:
(i) The main purpose of preparing a balance sheet is to ascertain the true financial position of the business at a particular point of time.
(ii) It helps in comparing the cost of various assets of the business such as the amount of closing stock, amount due from debtors, amount of fictitious assets, etc.
(iii) It helps in finding out the solvency position of the firm. The firm's solvency position is favourable if the assets exceed the external liabilities.

Preparation of trading account serves the following purposes:
(i) Provides information about gross profit or gross loss:
(a) It shows the gross profit or gross loss of the business for an accounting year.
(b) This helps the business persons to find out gross profit ratio by expressing the gross profit as a percentage of sales  It helps to compare and analyse with the ratios of the previous years.
(ii) Provides an opportunity to safeguard against possible losses:
If the ratio of gross profit has decreased in comparison to the preceding years, effective measures can be taken to safeguard against future losses.
(iii) Provides information about direct expenses and direct incomes:
(a) All the expenses incurred on the purchase of goods are direct expenses. They are recorded in the trading account.
(b) With the help of trading account, percentage of such expenses on sales revenue can be calculated and compared with similar ratios of the previous years.