We will learn today: What a Balance Sheet is How to define Assets and Liabilities How to Make it BALANCE !

In order to operate, businesses need assets. To buy these Assets they need to have funds e,g, borrow money etc. Any money that is borrowed or owed is know as a liability. Balance Sheets record all assets and liabilities – an it must balance ! They are produced annually by Limited Companies What the business owns What the business owes

Fixed Assets – can either be tangible or intangible. They are owned by the business and are used over a long period of time Current Assets – what is owned by the business and can easily be turned into cash (more liquid)

Lets add some values Balance Sheet ££ Fixed Assets Land and Buildings500 Equipment & Vehicles 300 Furniture & Fittings Current Assets Stock 45 Debtors155 Cash 30230

These can either be: Current (have to be paid within the next 12 months e.g. Creditors, overdraft, tax owed to the government Long Term (have to be paid off in more than 12 months e.g. Mortgages, hire purchase, long term loans etc.. and share capital

Lets add some more values Balance Sheet £ £ Fixed Assets Land and Buildings500 Equipment & Vehicles 300 Furniture & Fittings Current Assets Stock 45 Debtors155 Cash Current Liabilities Creditors120 Overdraft Net Current Assets ( or Working Capital) > 90 (Current Assets – Current Liabilities) Net Assets Employed > 1040 (Fixed Assets + Net Current Assets)

Once you know the Current Assets and the Current Liabilities it is then possible to calculate the Net Current Assets. This is also know as the Working Capital The Net Current Assets for Walker and Byrne are:

Lets add some more values Balance Sheet £ £ Fixed Assets Land and Buildings500 Equipment & Vehicles 300 Furniture & Fittings Current Assets Stock 45 Debtors155 Cash Current Liabilities Creditors120 Overdraft Net Current Assets ( or Working Capital) > 90 (Current Assets – Current Liabilities) Net Assets Employed > 1040 (Fixed Assets + Net Current Assets)

This shows the Fixed Assets and the Net Current Assets The Net Assets Employed for Walker and Byrne are:

Lets add some more values Balance Sheet £ £ Fixed Assets Land and Buildings500 Equipment & Vehicles 300 Furniture & Fittings Current Assets Stock 45 Debtors155 Cash Current Liabilities Creditors120 Overdraft Net Current Assets ( or Working Capital) > 90 (Current Assets – Current Liabilities) Net Assets Employed > 1040 (Fixed Assets + Net Current Assets)

At the bottom of the balance sheets there is then a Balancing Item, which includes the amount of Share Capital in the business as well as any retained profit or reserves. This should be equal to the Net Assets Employed Figure

Lets add some more values Balance Sheet £ £ £ Fixed Assets Land and Buildings500 Equipment & Vehicles 300 Furniture & Fittings Current Assets Stock 45 Debtors155 Cash Current Liabilities Creditors120 Bank Overdraft Net Current Assets 90 Net Assets Employed 1040 Financed by: Share Capital 500 Retained Profit 300 Bank Loan 240 Net Capital Employed (Shareholders Funds) 1040

Money the owners (or shareholders) have invested into the business. Money received from long-term liabilities (such as bank loans or mortgages) Money earned in profit this year CAPITAL EMPLOYED The top half a balance sheet refers to Assets that the company OWNS The bottom section however relates to how the company paid for the assets or what it OWES. This is probably made up of several key types of finance: (Net Assets = Fixed Assets + Current Assets – Current Liabilities). When all of this is added together, it should equal the same amount as shown in the top half of the Balance Sheet – the Net Assets of the business

A Balance Sheet can be used as follows: To show the wealth or value of the company at a particular moment in time To show owners and managers how well the company is performing in key measure and allowing comparisons with previous years and similar companies To meet the legal requirement for Limited Companies Both the balance sheet and the profit and loss account show the ‘health’ of the business

A balance sheet is the part of a business’ accounts where the assets and liabilities are recorded

What do we owe that is due to be paid back within the next 12mths? If we have bought stock who do we owe money to? If we were a “bit short” this month what might the bank give us as a short term solution? What does the government get us to pay them that we might be behind on paying?

Now try the tasks on the Work Sheet And then the Tasks in Your Cousework Booklet