BALANCE SHEET

Starter – DON’T LOOK IN BOOKS !!! What does a Trading, Profit and Loss Account show? What does an Appropriation Account show? How is it all laid out? How would a Profit and Loss Account be affected if the cost of materials were to increase? How would the Profit and Loss Account be affected if the wages were to be reduced? How would the Profit and Loss Account be affected if Dividends were to increase?

A balance sheet shows us the financial position of a business at one point in time- “a snapshot” The balance sheet takes one date and shows the value of what the business has (its assets), what it owes (its liabilities and capital)

Why? Helps to see if the business is financially secure We can also look at what the business owns. We can see what the business owes.

Fixed Assets These are items the business owns and tends to hold for a long period of time eg... Land Property Furniture& Fittings Vehicles Machinery

Current Assets Current assets are also things the business owns, but are more “liquid” – they can be turned into cash more easily Included in current assets is the most liquid of all assets... cash. Also included in current assets is money in the bank and stock Another item included is debtors, representing money owed by customers who have not yet paid THEY ARE IN “DEBT” – DEBTOR

Current Liabilities This section represents all the money that the business owes to others that has to be paid within a year Included in current liabilities are: 1. Overdrafts – money owed to the banks to repay short- term borrowing 2. Trade Creditors – money owed to suppliers for raw materials etc. 3. Taxation – businesses will owe the government money in the form of taxes and this is a current liability

Long Term Liabilities These are debts that are not due for OVER ONE year Examples of long term liabilities include... Long Term bank loans Mortgages

Net Current Assets (Working Capital) working capital is a handy way of looking at the liquidity of the business CURRENT ASSETS – CURRENT LIABILITIES = NET CURRENT ASSETS TOTAL ASSETS – CURRENT LIABILITIES This is also included on some balance sheets to help people consider a business’ position... Do they have more assets than liabilities? What if they don’t ???

CAPITAL EMPLOYED This represents the money that shareholders or owners invest in the business Some managers prefer to finance their activities using capital rather than by loans as they do not have to face interest charges In doing this, they will have to pay profit to owners (dividends to shareholders or drawings to sole traders/partnerships)

Why is it called a Balance sheet? Because; NET ASSETS = CAPITAL EMPLOYED