Balance sheet Flashcards
what is a balance sheet?
a snapshot of the business assets - what it owns
and its liabilities - what it owes
on a particular day - usually at the end of the financial year
what three things do you find in a balance sheet?
assets - resources which the business owns
liabilities - debts of the business
capital employed - the sum of a company’s share capital, reserves (retained profit) and long-term liabilities
what are fixed/non-current assets?
resources that a business owns for more than a year eg land, machinery, buildings
they are used to produce the output of the business and therefore generate profit
what are current assets?
resources a business owns for less than a year
eg stock, debtors (trade receivables) , cash
what are current liabilities?
debts of the business which must be paid back within a year
these can include trade creditors/payables or overdraft
what are long-term liabilities?
what the business owes and must pay back over a time longer than a year
eg long term loan, mortgage
what are net assets and how to calculate it?
shows the financial worth of the business and it is calculated by adding fixed and current assets together and the substracting current and long term liabilities
what are net current assets and how to work them out?
known as working capital and it is the difference between current assets and current liabilities
it is the money needed to pay day-to-day expenses eg wages and stock
what 4 reasons that may cause insufficient working capital?
suppliers and banks may be reluctant to give a business credit
businesses may not be able to pay suppliers who have already given credit which could lead to poor reputation
a firm may struggle to finance increased production due to little working capital
if working capital is too high then a business may be wasting resources, just holding money in the bank instead of making the money work for them by maybe investing it
what is capital employed?
referred to as the long-term capital employed
sum of a company’s share capital, reserves and long-term liabilities and shows the capital and funds invested in the business
what are shareholders’ funds?
known as shareholders’ capital and is the money invested in the business by the owners through the sale of shares
also includes reserves which is the profit that has been kept within the business rather than being given to shareholders in dividends
the owners may keep profit to finance growth
what is depreciation?
the fall in value of a fixed asset over time
what are three reasons an asset won’t be worth the same when it was first purchased?
wear and tear - level of performance deteriorates so does the value
assets can become obsolete - new technology may render older technologies as they are less desirable and newer tech is more productive and efficient
products produced by machinery may become obsolete which means rendering the machinery and therefore it becomes useless
how to workout annual depreciation?
historic cost - residual value / expected lifespan
how to workout net book value?
historic cost - annual depreciation
