Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Balance Sheet


Published on

Published in: Economy & Finance, Technology

Balance Sheet

  1. 1. Balance Sheet SG Accounting & Finance Mr McGowan
  2. 2. Balance Sheet <ul><li>The profit and loss account shows the history of the business activity throughout the financial year. </li></ul><ul><li>The balance sheet shows a snapshot of a particular date in time. </li></ul><ul><li>CAPITAL = ASSETS - LIABILITIES </li></ul>
  3. 3. Balance Sheet Assets Liabilities & Capital Balance
  4. 4. Assets <ul><li>Assets – are what a business owns </li></ul><ul><li>Fixed assets – have a lifespan of more than one year, eg machinery, motor vehicles </li></ul><ul><li>Current Assets – are constantly changing eg stock, debtors, bank, cash </li></ul>
  5. 5. Liabilities <ul><li>Liabilities – what is owed by the business </li></ul><ul><li>Current Liabilities – eg trade creditors (suppliers of goods on credit), bank overdraft, short-term loans (less than 1 year) </li></ul><ul><li>Long-term liabilities – normally longer than 1 year – eg mortgage, bank loan </li></ul>
  6. 6. Capital <ul><li>Capital – provided by the owner of the business and treated as being owned to the owner of the business </li></ul><ul><li>Profits – may increase capital </li></ul><ul><li>Drawings – may decrease capital </li></ul><ul><li>Reserves – monies retained by business </li></ul>
  7. 7. Liquidity <ul><li>Liquidity shows us whether a business has enough assets to cover its debts. </li></ul><ul><li>Turning assets into cash to pay off debts is what normally happens. </li></ul><ul><li>Stock is the hardest to turn into cash. Why? </li></ul>
  8. 8. Working Capital <ul><li>Working Capital is: </li></ul><ul><li>Current Assets – Current Liabilities </li></ul><ul><li>If a business has too much working capital then they are not using their resources properly. </li></ul><ul><li>If too little, then they may not be able to pay off short term debts. </li></ul>
  9. 9. Assets <ul><li>Fixed assets £ </li></ul><ul><li>Premises 60,000 </li></ul><ul><li>Equipment 20,000 </li></ul><ul><li>Total fixed assets 80,000 </li></ul><ul><li>Current assets </li></ul><ul><li>Stock 20,000 </li></ul><ul><li>Debtors 10,000 </li></ul><ul><li>Cash at bank 10,000 </li></ul><ul><li>Total current assets 40,000 </li></ul><ul><li>(Total assets = £120,000 but this figure doesn’t show) </li></ul>
  10. 10. Current liabilities <ul><li>LIABILITIES </li></ul><ul><li>£ </li></ul><ul><li>Current liabilities </li></ul><ul><li>Creditors -10,000 </li></ul><ul><li>Net current assets/liabilities 40,000 </li></ul><ul><li>(This is the current assets - £40,000 - minus the current liabilities) </li></ul><ul><li>Total assets less current liabilities 140,000 </li></ul><ul><li>(This is the total assets - £120,000 - minus the current liabilities) </li></ul>
  11. 11. Capital and reserves <ul><li>Capital and reserves £ </li></ul><ul><li>Share capital 70,000 </li></ul><ul><li>Reserves 30,000 </li></ul><ul><li>Profit and loss account 10,000 </li></ul><ul><li>Shareholders’ funds 110,000 </li></ul><ul><li>(This is the total amount in capital and reserves. It must equal the same amount as the total assets minus current liabilities) </li></ul>
  12. 12. Interpretation of Balance Sheet <ul><li>Do we have enough working capital to avoid cash flow problems? </li></ul><ul><li>Are we making enough use of available trade credit? </li></ul><ul><li>Is our level of debtors comparable with that of our industry competitors? </li></ul>