L.O To construct a balance sheet with information given

BALANCE SHEET Items that are owned by the business or owed to the business The balance sheet is a financial statement which shows the assets, liabilities and capital of a business on a particular date. Is the money invested by the owners Is the amount owed by the business

The employee’s details The balance sheet shows the financial health of the business, as well as..... Assets & Liabilities The Manager’s name Liabilities & Capital How much profit Assets & Capital The employee’s details The flow of cash Assets, Liabilities & Capital 4

As soon as the balance sheet is produced it is.... Thrown in the bin Given to every employee Done again Laminated Put on weighing scales Sent to the government Sold to the public Out of date 6

All stakeholders will be interested in the balance sheet, especially.... Local Community The environment Your mum Mr Fletcher Competitors The government Suppliers 8 Shareholders

Items owned by the business, or owed to the business Assets Current Liabilities Liabilities Fixed Assets Capital Buildings Current Assets Money 1

Money invested by the owners is..... Profit Assets A wise investment Liability Converted in to stock A stupid idea Put in the bank account Capital 3

Items owed by the business are.... Assets Debt Debtors Capital Don’t know Creditors Fixed Assets 7 Liabilities

Why produce a balance sheet? It shows the owner what their investment has been used for and gives an idea of what the business is worth. Shows the financial health of a business. It shows where the money has come from and what it has been spent on.

Assets – Items owned by the business or owed to the business. Fixed Assets – Items kept longer than 1 year. Buildings / Vehicles / equipment Current Assets – Items kept less than 1 year Stock / Debtors / Cash in hand

Liabilities – Amounts owed by the business Current liabilities Liabilities due to be repaid in less than one year Long-term liabilities Liabilities due to be repaid over more than one year Capital – Money invested by the owner of a business

A loan / a liability / the money you owe How does a balance sheet balance? £10 A loan / a liability / the money you owe £10

How does a balance sheet balance? Assets Liabilities £7,000 £3,000 Total £10,000 Bank Loan £2,000 Capital £8,000 Total £10,000 Assets Liabilities £7,000 £3,000 Total £10,000

How does a balance sheet balance? Capital £8,000 Total £8,000 Assets Computers £7,000 Furniture £3,000 Total £10,000 minus liabilities Bank loan £2,000 total £8,000 Assets Computers £7,000 Furniture £3,000 Total £10,000 minus liabilities Bank loan £2,000 total £8,000

BALANCE SHEET (TOP)

BALANCE SHEET (TOP)

BALANCE SHEET (BOTTOM)

Create a balance sheet using the information below for Now your turn Create a balance sheet using the information below for ‘MADE UP COMPANY LTD’ Premises - £100,000 Creditors - £50,000 Equipment - £ 20,000 Cash in bank - £20,000 Profit & Loss (Net profit) - £30,000 Debtors - £10,000 Stock - £5,000 Share capital - £65,000 Reserves - £10,000

Working Capital = Current Assets – Current Liabilities Working Capital can be calculated as follows – Working Capital = Current Assets – Current Liabilities Anything the business owns and intends not to have for more than 1 year (raw materials / stock / debtors / cash) Anything the business owes which must be paid in less than a year (creditors / overdraft / dividends)

WORKING CAPITAL

Working out working capital Working capital represents operating liquidity available to a business. It is calculated as current assets minus current liabilities. Working Capital = Current Assets − Current Liabilities A company can have loads of assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses.

Capital Employed Capital employed is the value of the assets that contribute to a company’s ability to generate revenue Fixed assets + current assets – current liabilities

Balance Sheet 1 Fixed assets £ Buildings 60,000 Equipment 20,000 Total fixed assets 80,000 Current assets Stock 20,000 Debtors 10,000 Cash in bank 10,000 Total current assets 40,000 (Total assets = £120,000)

Balance Sheet 2 LIABILITIES £ liabilities Creditors -10,000 Total assets less liabilities 110,000 (This is the total assets - £120,000 - minus the liabilities)

Balance Sheet 3 Capital and reserves £ Share capital 70,000 Profit and loss account 10,000 Shareholders’ funds 110,000 (This is the total amount in capital and reserves. It must equal the same amount as the total assets minus liabilities)

Balance Sheet ASSETS Fixed assets (assets listed) Total fixed assets £80,000 A Current assets (assets listed) Total current assets £40,000 B LIABILITIES Current liabilities –£10,000 C Total assets less current liabilities (Net assets) £110,000 A + B – C ______________________________________________________ Capital and reserves (all listed) Shareholders’ funds £110,000 D

Advantages of using ICT Spreadsheets can be used to compile profit and loss accounts, formulae can be used to perform any calculations The spreadsheet template can be used again and again Advantages include speed, accuracy, instant access to information The spreadsheet can be used to create graphs

Disadvantages of using ICT Setting up the original template can be time-consuming If the formula are incorrect then the final accounts will be wrong Spreadsheet files can be easily deleted, and open to abuse.