1. FINANCIAL INFORMATION
BALANCE SHEET
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2. PURPOSE
Shows a snapshot of the business’s financial position at a particular date
Once published, it is out of date immediately
Therefore a historical document
Records the financial worth of the business
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3. WHAT DOES IT SHOW? ASSETS
Fixed – something the business owns over a long period of time (building, machinery etc)
Current – something the business owns over a short period of time - usually one year, (bank, cash, stock, debtors (companies who owe you money) and frequently changes value
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4. WHAT DOES IT SHOW? LIABILITIES
Current – something the business owes over a short period of time and must be paid back within a year
Debts to other companies (Creditors)
Bank Overdraft
Long Term – something the business owes over a long period of time and takes longer than a year to pay back
Mortgage
Long Term Loan
Debentures
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5. WHAT DOES IT SHOW? Reserves Capital
Money and Profit which are kept by the business either to buy new assets or to be put aside in case they experience losses
Capital
The money invested into the business either by the owner, partners or shareholders
This money is then owed back to the people who invested it
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6. LAYOUT OF A BALANCE SHEET
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7. + + - - + +
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8. MORE DETAIL
Fixed Assets – productive assets ie without these the business would not be able to function day to day
Current assets – assets that change on a daily basis and can be easily turned into cash
Net Current Assets or Working Capital – the difference between the Current Assets and Current Liabilities
Shows the ability of the business to meet its short term debts
ie can they can pay off their debts with their current assets?
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9. WORKING CAPITAL OR NET CURRENT ASSETS
If Current Liabilities are greater than Current Assets then the business is in danger of being unable to pay off their debts
May result in them having to sell fixed assets to survive but by doing this the company may not be able to function properly as these are the productive assets
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10. NET WORTH Fixed Assets + Net Current Assets
Shows the ‘value’ of the business in money terms for a particular date
Remember – Historical Information
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11. FINANCED BY: Bottom section of the Balance Sheet
Shows how much was invested (Capital) by Owners, Partners or shareholders
The amount of profit kept (reserves)
Long Term Liabilities that are due to be paid back but help finance the business
Financed by Section should equal the Net Worth figure from the top part of the Balance Sheet
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