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Inspirational Quotes

Balance Sheet

Tue, 01 January 2002

A balance sheet details your business' assets and liabilities, and shows the financial state of your company at a specific point in time.
The assets less liabilities will always equal capital employed, hence the term 'balance' sheet. You should produce a balance sheet at the end of every month, quarter or financial year; you are legally obliged to include at least one balance sheet in your annual company accounts.
 
A balance sheet comprises the following:
  • Fixed Assets - such as land and buildings, plant and machinery, and any motor vehicles used for business purposes, etc. You must remember that these items will decrease in value, and their depreciated value must be recorded on the balance sheet (figure X in the example below).
  • Current Assets - such as stock, money owed by customers (debtors), money in the business' bank account, etc. While debtors are an asset, there may be one or two whose payment can not be guaranteed, so the value of their debt should be listed as 'doubtful' and subtracted before you work out the 'Total Current Assets' (figure A).
  • Current Liabilities - includes money owed to creditors and your bank overdraft, etc. The total (figure B) is subtracted from your 'Total Current Assets (figure A), giving you the total of your 'Net Current Assets' (figure C).
  • Long-term Liabilities - this generally covers such things as long-term loans (ie loans that have to be repaid after 12 months), etc. This total (figure D) should be subtracted from your 'Net Current Assets (figure C) and will provide you with an overall total of the business' assets (figure E).
  • Capital - this is the amount that you invested in the business to start up, plus any profits you have made (Limited companies would include stakeholders' capital). Remember to subtract any 'Drawings' you take out of the business (figure Y) before working out your total capital employed (figure Z).
Note: the value of fixed assets must be adjusted to take account of depreciation.
 
An example of a sole trader's balance sheet
 
£
£
 
Value
Total Value
Fixed Assets
 
 
Land and Buildings
2,850
 
Plant and Machinery
480
 
Fixture and Fittings
630
 
Motor Vehicles
675
 
 
 
4,635 (X)
 
 
 
Current Assets
 
 
Stocks
900
 
Debtors
912
 
Less provision for debts which may remain unpaid
(12)
 
Prepayments
30
 
Banks and Cash
900
 
 
 
2,730 (A)
 
 
 
Current Liabilities
 
 
Creditors
300
 
Accruals
60
 
Overdraft
840
 
 
 
(1,200) (B)
 
 
 
Net Current Assets
 
1,530 (C)
 
 
 
Long Term Liabilities
 
 
Loan
 
(165) (D)
 
 
 
(Business Assets)
 
6,000 (E)
 
 
 
Represented by:
 
 
Capital
 
4,500
 
 
 
plus Profits earned this year
600
 
plus Profits earned in previous years
3,000
 
 
 
3,600
minus Drawings
 
(2,100) (Y)
 
 
6,000 (Z)

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