Business Accounts: the Balance Sheet All: Understand what is a balance sheet and cash flow statement Most: Explain the purpose of a balance sheet and cash flow statement Some: Apply a balance sheet and cash flow to a business scenario.

Look at the following items and decide if they are owned or owed by a company. Wages Rent Stock Machinery Vehicles Stationery

The Balance Sheet The Balance Sheet shows how much a company is worth (showing its assets and liabilities) at any one point in time

Terms Things owned by a company Things owed by a company liabilities assets + over a long time – fixed assets + for a shorter time – current assets Things owed by a company liabilities over a long time – long term liabilities over a short time – current liabilities

The Balance Sheet The balance sheet shows what a business is worth at a precise point in time. It is made of three parts ASSETS – fixed assets & current assets LIABILITIES - long–term liabilities & current liabilities CAPITAL - money the owner (s) have put into the business

Net Current Assets (Working Assets) Net assets are the difference between the current liabilities and the current assets. Net assets are important because they finance the day to day running costs.

Cash flow Forecasting Cash flow forecasting allows a company to have sufficient amounts of cash at certain times Statement of Cash Flows

Importance of cash flow Cash flow is important as it allows the business to pay off it’s debts when necessary A company may be very profitable but not have enough cash to pay off debts. Therefore a company plans and allows for times when it has less ready cash to pay debts. The plan is known as a cash flow forecast.

How to improve cash flow Cash flow can be improved by obtaining more cash at time when bills and debts have to be met. This can be done by: i) arranging an overdraft at the bank ii) lease rather than purchase equipment iii) encourage customers to pay more promptly iv) arrange trade credit with suppliers v) keep capital in the business by postponing the purchasing of equipment vi) reducing stock levels

Sources of Finance All businesses need money to survive. This money can be found within (internally) or from outside (externally) the company. The businesses needs for money changes as it grows. Start up costs, Working capital and capital expenditure. List as many ways that finance is used.