Chapter 24 - Balance Sheets (Balance Sheet (Assets (Non-current assets…
Chapter 24 - Balance Sheets
Shows the value of a business’s assets and liabilities at a particular time. Sometimes referred to as ‘statement of financial position.’
It records the
value or worth
of a business at just one moment in time - at the end of the financial year.
Those items of value which are owned by the business. They may be fixed (non-current) or short-term current assets.
Items owned by the business for more than one year.
Examples: Land, buildings, equipment, vehicles
Owned by a business and used within one year.
Examples: Cash, inventories (stock) and
(Debtor customers who owe money to the business).
Those that do not exist physically but still have a value.
Examples: Brand names, patents and copyrights
Debts owed by the business.
Long-term debts owed by the business.
Example: Bank Loan & Debenture
Short-term debts owed by the business.
Examples: Bank overdraft &
(Suppliers/creditors owed money by the business).
The value of assets is greater than the value of his debts or liabilities means person owns wealth. This wealth belongs to owners or shareholders.
It shows how much wealth or equity the owners have invested in the business.
They would like to see this increase year by year.
Total Assets - Total Liabilities = Owner's Equity (shareholders' funds in limited company)
Balance Sheet Terms
Total assets less total liabilities
total shareholders' funds or equity
- otherwise balance sheet wouldn't be balanced
is the total sum of money invested into the business by the owners of the company - the shareholders. This money is invested into two ways:
is the money put into the business when the shareholders bought newly issued shares.
Profit and loss reserves
are retained profits from current and previous years. This profit is owned by the shareholders but has not been paid out to them in the form of dividends. It is kept as part of shareholders’ funds.
Interpreting Balance Sheet Data
can see if 'their' stake in the business has increased of fallen in value over the last 12 months by
looking at 'total equity' figures
can also analyse how
by the business has been paid for:
by increasing non-current liabilities (long-term loans); from retained profits or by increasing share capital (sale of shares). If inventories or stocks have been sold off to provide capital for business expansion then this will be clear by this figure declining on balance sheet.
can be calculated. Is it very important because it is
used to pay short-term debts
. If these debts can't be paid because business doesn't have enough working capital, creditors could force business to stop trading
Working capital = current assets - current liabilities
can be calculated. This is t
he long-term and permanent capital
of the business which has been used to
pay for the assets
of the business
Capital employed = shareholders' funds + non-current liabilities
which are used to assess business performance