Balance Sheet

Question 0

Fixed assest and current assets

Answer 0

Fixed assets show the current value of major purchases that help in the running of the business, like delivery vans or PCs. In this case £150,000 of fixed assets are owned. Current assets show the cash or near-cash available to the firm. This includes stock ready to sell, money owed to them by debtors and cash in the bank. There are £25,000 worth of current assets.

Question 1

What is a balance sheet

Answer 1

A balance sheet shows the value of a business on a particular date. A balance sheet shows what the business owns and owes (its assets and its liabilities).

Question 2

Current liabilities

Answer 2

Deducting all the current liabilities from the total amount of fixed and current assets gives the value of the business on the day the balance sheet was drawn up. This business is worth £75,000, financed by £75,000 of share capital and reserves. Capital and reserves are in effect liabilities, because the firm owes this money to the owners. What a firm owns, it owes.

Question 3

Working capital

Answer 3

Working capital

A business is solvent if it can meet its short-term debts when they are due for payment. To do this it needs adequate working capital. There are three main reasons why a business needs adequate working capital. It must:
pay staff wages and salaries
settle debts and therefore avoid legal action by creditors
benefit from cash discounts offered in return for prompt payment