[Solved] Sinking Fund In Balance Sheet Example

 Welcome back to our blog today we are going to solve an example of a sinking fund in a balance sheet so if you are an accounting student then you should learn sinking funds and how to use them.

What is a Sinking Fund?

The sinking fund is a strategic financial provision where a company regularly sets aside money to repay debt obligations or replace assets at a specified future date. This fund acts as a protection against potential financial stresses and assists in debt management.

These funds are prominently displayed on a company's balance sheet under long-term liabilities. 

 Sinking Fund In Balance Sheet

Advantages of sinking funds

Before we go to the example let me tell you about the advantages of sinking funds.

Benefit	Description
Financial Stability	Sinking funds cultivate stability by setting aside dedicated funds, ensuring the availability of resources to meet future financial obligations, and reducing the reliance on external borrowing during critical periods.
Risk Mitigation	They act as a buffer against potential defaults or financial strains by systematically accumulating funds, thereby minimizing the risk associated with the repayment of long-term debts or replacing assets.
Flexibility in Planning	Sinking funds offer financial flexibility, allowing companies to strategically plan for future commitments or investments without disrupting ongoing operations or seeking urgent external financing.
Enhanced Creditworthiness	Having a well-managed sinking fund can positively impact a company's credit rating, signaling to investors and creditors the company's ability to honor financial commitments, potentially leading to better terms for future borrowings.

sinking fund in balance sheet example

Check out this example and see how to show a sinking fund in the balance sheet.

+--------------------------------------------+

|               XYZ Corporation              |

|              Balance Sheet                 |

+--------------------------------------------+

|                    ASSETS                  |

|--------------------------------------------|

| Current Assets:                            |

|   - Cash and Cash Equivalents              |

|   - Accounts Receivable                    |

|   - Inventory                             |

|   - Other Current Assets                   |

| Total Current Assets                       |

|                                            |

| Non-Current Assets:                        |

|   - Property, Plant, and Equipment         |

|   - Intangible Assets                      |

|   - Investments                           |

|   - Other Non-Current Assets               |

| Total Non-Current Assets                   |

|                                            |

| Total Assets                               |

|                                            |

| LIABILITIES AND EQUITY                     |

|--------------------------------------------|

| Current Liabilities:                       |

|   - Accounts Payable                       |

|   - Short-Term Debt                        |

|   - Accrued Expenses                       |

|   - Other Current Liabilities              |

| Total Current Liabilities                  |

|                                            |

| Non-Current Liabilities:                   |

|   - Long-Term Debt                         |

|     - Sinking Fund for Long-Term Debt      |

|         $2,000,000                         |

|   - Deferred Tax Liabilities               |

|   - Other Non-Current Liabilities          |

| Total Non-Current Liabilities              |

|                                            |

| Total Liabilities                          |

|                                            |

| Equity:                                    |

|   - Common Stock                           |

|   - Retained Earnings                      |

|   - Other Equity                           |

| Total Equity                               |

|                                            |

| Total Liabilities and Equity               |

+--------------------------------------------+

Conclsuion

Here in this post, we add a sinking fund in the balance sheet example so if you want to learn about sinking funds then you can check out this solved example.