Balance Sheets “The balance sheet is an accounting statement that shows an organisation’s ASSETS (what the business owns) and LIABILITIES (what the business owes) at a precise point in time, usually the last day of the accounting year.” “The balance sheet is an accounting statement that shows an organisation’s ASSETS (what the business owns) and LIABILITIES (what the business owes) at a precise point in time, usually the last day of the accounting year.” = SNAPSHOT The balance sheet balances NET ASSETS with CAPITAL AND RESERVES OR CAPITAL EMPLOYED. The balance sheet balances NET ASSETS with CAPITAL AND RESERVES OR CAPITAL EMPLOYED. The balance sheet will always balance since every asset must always have a corresponding source of finance. The balance sheet will always balance since every asset must always have a corresponding source of finance.

A Simplified Balance Sheet Assets employed Assets employed Fixed assets (A) Fixed assets (A) Current assets (B) Current assets (B) Current liabilities (C) Current liabilities (C) Net current assets (working capital) (D = B-C) Net current assets (working capital) (D = B-C) Long term liabilities (E) Long term liabilities (E) ASSETS EMPLOYED (A + D – E) ASSETS EMPLOYED (A + D – E) Capital and reserves Capital and reserves Share capital (F) Share capital (F) Reserves (G) Reserves (G) CAPITAL EMPLOYED (F + G) CAPITAL EMPLOYED (F + G)

A Balance Sheet (the top half) NET ASSETS FIXED ASSETS = long term assets eg property, vehicles & machinery FIXED ASSETS = long term assets eg property, vehicles & machinery CURRENT ASSETS = cash or likely to be turned to cash before the next balance sheet date eg cash, debtors, stocks CURRENT ASSETS = cash or likely to be turned to cash before the next balance sheet date eg cash, debtors, stocks CURRENT LIABILITIES = owed by the organisation and likely to be paid before the next balance sheet date, usually within the next year eg trade creditors, overdraft, tax CURRENT LIABILITIES = owed by the organisation and likely to be paid before the next balance sheet date, usually within the next year eg trade creditors, overdraft, tax NET CURRENT ASSETS or Working Capital NET CURRENT ASSETS or Working Capital = CURRENT ASSETS – CURRENT LIABILITIES LONG TERM LIABILITIES = owed by the organisation and will have to be paid in more than one year’s time. LONG TERM LIABILITIES = owed by the organisation and will have to be paid in more than one year’s time. Fixed assets + working capital – long term liabilities = NET ASSETS

A Balance Sheet (bottom half) CAPITAL AND RESERVES SHARE CAPITAL = the value of the sum invested in the company by share holders SHARE CAPITAL = the value of the sum invested in the company by share holders RESERVES = Retained profit & other reserves RESERVES = Retained profit & other reserves NET ASSETS = CAPITAL EMPLOYED NET ASSETS = CAPITAL EMPLOYED SHARE CAPITAL + RESERVES = CAPITAL EMPLOYED