Balance sheets provide a snapshot of the assets and liabilities of a business at a point of time.
It shows what the business owns, is owed and owes:
Owns – assets such as buildings, stock and cash.
Is owed – money from debtors.
Owes – money to creditors and the bank.
Owes to the investors and owners of the business (they own the profit).
A typical balance sheet would look like this:
Balance sheet for XYZ plc as at 31 March 20X6
Likely to find sub-totals for buildings, equipment and vehicles
Total current assets
Stock + debtors + cash
Net Current Assets
Current assets – current liabilities; also known as working capital
Net assets employed
Fixed assets + net current assets
Long term liabilities
e.g. loans from banks
Amounts invested by shareholders
Profit and loss reserves
The profit accumulated that has been retained by the business
Long term liabilities + share capital + profit and loss reserves
Note that net assets employed = capital employed. This is always the case, because the capital employed is the amount of long-term money put into the business and the net assets employed how it is used.
Fixed assets are:
Current assets are assets that will be used up or sold in the next year + the cash balances kept in the business. The main categories are:
Current liabilities are what the business owes in the short run. The main categories are:
The total of current assets minus current liabilities is known as working capital. This is amount of money available for the day to day running of the business. A negative figure can be a problem for some businesses that may need to pay for outstanding debts, but do not have enough spare cash to do so.
Long-term liabilities are the monies the business has borrowed for a period of more than a year – mainly bank loans.
Share capital is the money invested in the business by the owners.
Profit and loss reserves are the profits due to the owners that have not already been paid out in dividends. This money is not necessarily held in cash (see the current assets), but may have been used to buy more stock or fixed assets.
Shareholder funds are the share capital and reserves added together.
Capital is the amount of long-term money put into the business to buy assets. Main forms of capital: owner's money (share capital) and long term bank loans.
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