- Slides: 11
The Balance Sheet
Balance Sheets • Balance sheets seem tricky but are quite easy to master • The balance sheet is a picture of a company’s financial situation at a moment in time – a snap shot • The idea behind it is simple – it records where the business got its money from and what it has done with it • It shows what a business owns (assets), what it owes (liabilities) and how it paid for this…
Balance Sheet - Mr Reading's Burger Bar Ltd - 31 st March 2005 Fixed Assets Property Machinery Vehicles 80 40 30 150 Current Assets Stock Debtors Cash 5 12 3 20 What it’s doing with its money Current Liabilities Creditors Unpaid Tax 14 1 15 Net Current Assets (Working Capital) Net Assets Financed by: Shareholder's Funds Share Capital Retained Profit Long Term Liabilities Bank Loan Debentures Capital Employed 5 155 These two figures must balance 80 50 20 5 155 Where its got it money from
Capital Employed = Net Assets They must always balance
Balance Sheet - Mr Reading's Burger Bar Ltd - 31 st March 2005 The business has bought some fixed assets Fixed Assets Property Machinery Vehicles 80 40 30 150 Fixed Assets will last for MORE THAN ONE YEAR – they will have depreciated but we don’t need to worry about this here…. .
Current Assets last for a FEW MONTHS Current Assets Liquidity of assets increases Stock Debtors Cash The most liquid – money the firm hasn’t spent 5 Raw materials or finished products it hasn’t sold 12 3 20 People who owe the business e. g. trade credit
Current Liabilities are Bills the firm has to Pay Soon Current Liabilities Creditors Unpaid Tax 14 1 15 The opposite to debtors – the business owes them. This is money owed to suppliers They have to be paid within one year of the date of the Balance Sheet This is money that doesn’t really belong to the firm. You are going to have to stump up soon. So it is taken away from the current asset figure.
Fixed Assets Property Machinery Vehicles 80 40 30 150 Current Assets Stock Debtors Cash Current Liabilities Creditors Unpaid Tax 5 12 3 20 - 14 1 15 Net Current Assets (Working Cpaital) Net Assets + Net Current Assets = Current Assets – Current Liabilities It’s also called working capital – does the business have enough capital to pay off its short-term 5 debts? 155 Net Current Assets + Fixed Assets = Net Assets. This is the net worth of the business – everything its spent its cash on!
Financed by: Shareholder's Funds Share Capital Retained Profit Long Term Liabilities Bank Loan Debentures Capital Employed Money put into business from share issue 80 50 20 5 155 Capital Employed is what you get when you add shareholders funds and long term liabilities. It must equal Net Assets! All the profit retained for future investment Money that is borrowed from other people – debts that take over a year to pay
• All limited companies are required by law to produce a pnl account and a balance sheet • The government uses them to work out how much tax should be collected. • Banks use them to decide whether to give a loan or not • Investors use them to decide if they should invest or not
It seems tricky but practice makes perfect… Top Tips: • Make sure you know what all the headings mean and what goes under it • Remember there are 2 parts: what it has done with it’s money and where the money came from • Net Assets = Capital employed • It shows the current position of a business on one particular date it is a snap shot of what it owns and what it owes