7.2a Balance Sheets Flashcards
What are balance sheets?
A measure of the accumulated value of the business since it began
What can balance sheets be used to judge?
- The business’ worth
- Its debts
- Its sources of finance
- Changes over time
Equity formula
Non-current assets + current assets - current liabilities - non-current liabilities = Equity
Non-current assets definition
Assets that have been part of the business than more than a year
Current assets definition
Assets that have been part of the business for less than a year
Non-current liabilities definition
Liabilities that will be paid back in more than one year
Current liabilities definition
Liabilities that will be paid back in less than one year.
What is total equity?
The total of all the money that has been put into the business
Share capital definition
Money generated by selling shares in the business
Reserves definition
Profit retained by the business and put back in to improve it
Net current assets formula
Net current assets = current assets - current liabilities
Net assets formula
Net assets = non-current assets + net current assets - non-current liabilities
Assets employed formula
Assets employed = net current assets + non-current assets
Capital employed formula
Capital employed = total equity + non-current liabilities
When are share capital and reserves included?
When calculating equity
What is a disadvantage of a balance sheet?
It is a snapshot of one day only so many not be relevant in the future
What is depreciation?
When assets lose value over time
Working capital definition
The amount of cash (and assets that can be easily turned into cash) that the business have available to pay day-to-day debts
Working capital formula
Working capital = current assets - current liabilities
Reasons a business would need to hold more cash:
- Inflation increasing cost of wages and stock
- Long cash-flow cycle as they need to wait for money to come in
- Expanding, so needs cash to avoid overtrading
What is allocating capital expenditure?
Setting aside enough money to stop current-assets from wearing out
What is ‘net realisable value’?
Amount the company could get by selling the stock right now in its current state
Reasons assets lose value:
- Wear and tear
- Break-down
- Old fashioned
Why are suppliers interested in working capital and liquidity?
If a business is more liquid they are more likely to offer them better credit
