Introduction to the Balance Sheet
A balance sheet is a statement of the total assets and liabilities of an organisation at a particular date – usually the last date of an accounting period.
The balance sheet is split into two parts:
- A statement of fixed assets, current assets and the liabilities ( sometimes referred as a “Net Assets”)
- A statement showing how the Net assets have been financed, for example through share capital and retained profits.
Balance Sheet – Accounting for Fixed Assets.
Current Assets – are those that form part of the capital of a business. They are replaced converted in to cash during the course of trading. E.g:- Stocks, Trade debtors, Cash and customers.
Customers buy the stock and they pay money, as they are current asset. Bank account money in cash.
Assets – Something that a business owns. E.g:- machinery, equipments, vehicles, buildings.
Liabilities – Debt any money that you own.
- Long- Term
- Short term (current liabilities)
- Capital Liability owned by the business to the owner.
Current Liabilities – are your debit will pay after a year. E.g:- Bank Overdraft, Trade creditors, financial debts.
Long term Liabilities – longer to pay the money. E.g:- mortgage.
Capital – the money which is used to start a business..
Drawings – Money takeout from the business money. Capital employed – The total fixed assets and current assets used in business less current liabilities (or fixed assets + working capital)
Net Assets – The excess of the book value of all assets over all liabilities (including loan capital).
Types of Assets
Fixed Assets – the things that you want to remain for the business in a long term.
These are used in the Balance Sheet (Tangible Fixed Asset)
- Land and buildings
- Plant and machinery equipments
- Fixtures, fittings, Tools and equipment
- Vehicles
- Assets in course of construction
Intangible Fixed Assets
- Trademarks and brand names
- Licenses
- Patents and copyrighted.
Current Asset – The things that you can sell in the short term.
- Provides a benefit for less than 12 months
- Stocks
- Debtors or amount receivable
- Cash
- Repayments
Assets = Fixed Assets + Current Assets
Liabilities = Shareholders fund + Long-term liabilities + Current Liabilities.
Net Current Assets = Current assets – Current liabilities (Working Capital)
Profit = Revenue – Costs.
Gross Profit = Sales Revenue – Cost of sales
Net Profit = Gross Profit – All Indirect Expenses
Fixed assets + Net current assets
