Balance sheets

What is a balance sheet ? A list of all the assets and liabilities of a business An asset is anything owned by a business which has value e.g. machinery or premises A liability is anything owed by the business e.g. a loan, or an overdraft A balance sheet is produced on one particular day at the end of the company’s year – it is a snapshot of all the assets and liabilities on that day

Purpose of a balance sheet Provides financial information to those loaning money to the business plus investors, possible lenders, customers and suppliers Shows how money is being used and what assets it has been spent on Note the term balance sheet – this is because the total amount of assets must equal the liabilities

Layout of the balance sheet See excel doc.

Components of balance sheet Fixed assets – assets owned by the business which will be kept for longer than one year Current assets – assets used within one year Current liabilities – debts to be paid within one year Share capital – money paid into the business for shares Reserves – money retained to be re-invested in the business Profit and loss – net profit from the profit and loss account to be added to reserves

calculations Total fixed assets – sum of all the fixed assets Total current assets – sum of all the current assets Net current assets/liabilities – add total current assets to the creditors figure Total assets less current liabilities – add current and fixed assets together and subtract amount owed to creditors Shareholder funds – sum of share capital, reserves and profit and loss account ( should equal total assets minus current liabilities figure)

Exercise/Homework Chapter review and practice questions p 376