BALANCE SHEETS Flashcards
What is a balance sheet
A formal financial document (formal means that it needs to be published, and guidelines for how it should be published, the language that needs to be used, and how it should be set out) that shows the net worth of a business at a given point in time. It balances the assets a business owns with the liabilities it owes.
To find the value of the business you need to take the total liability away from the assets (the value of the assets if they sold them)
What are considered to be assets
Assets could be: Cars, houses, plains, money in the bank etc
Assets are things that generate positive income for the business
Balance sheets assets
Current assets (to be turned into cash within a year)
Non - current liabilities (debts that are due to be repaid in over a year’s time) things like bank loans
Current liabilities (debts to be paid within a year)
Working capital (total current liabilities minus total current assets) this isn’t detailed on the balance sheets, but you can work it out very easily using the formula above. If the total current liabilities exceed the total current assets that’s going to be a big worry for the business.
Equity (A fancy word for the total amount the business shareholders have invested in the business)
What are some tips for balance sheets
When you see brackets, that means that money is leaving the business
You can work out the total capital invested in a business if you add the total value of shareholder funds to the non-current liabilities invested, and that would be the total capital employed
