Company Accounts: Balance Sheets Flashcards
What is a balance sheet?
Balance sheets are a snapshot of a firm’s finances at a fixed point in time.
What is the purpose of a balance sheet?
They show the value of all the business’ assets (the things that belong to the business, including cash in the bank) and all its liabilities (the money the business owes). They also show the valie of all the capital (the money invested in the business), and the source of that capital (e.g. loans, shares or retained profits) - they also show where the money’s come from as wella s what’s being done with it.
On a balance sheet, what is the ‘Inventories (stock’ figure?
Raw materials and finished products - things the business has spent mmoney on but not sold yet.
On a balance sheet, what is the ‘Receivables (debtors)’ figure?
Value of the products sold but not paid for yet. Money owed to the business.
On a balance sheet, what is the ‘Payables (creditors)’ figure?
Money owed by the business.
On a balance sheet, what is the ‘Dividends’ figure?
Dividends not yet paid to shareholders.
On a balance sheet, what is the ‘Net current assets’ figure?
This is the working capital available to pay for day to day spending.
On a balance sheet, what is the ‘Reserves’ figure?
The figure for reserves takes into account depreciation, it’s an expense on the income statement, so the net profit has already had depreciation deducted. Depreciation is taken into account in ‘net assets’, so if it wasn’t included here, the figures wouldn’t balance.
What can a business use capital for?
Businesses can use capital to buy asses that will generate more revenue in the future - this is investment.
Define assets on a balance sheet.
Assets (like machinery and stock) provide a financial benefit to the business, so they’re given a monetary value on the balance sheet. Assets can be classified as non-current assets (fixed assets) or current assets.
Define non-current assets on a balance sheet.
Non-current assets are assets that the business is likely to keep for more than a year, e.g. property, land, production equipment, desks and computers. The ‘total non-current assets’ value on the balance sheet is the combined value of all the business’ non-current assets.
Define depreciation on a balance sheet.
Non-current assets often lose value over time, so they’re worth less every year. This is depreciation. Businesses should factor in depredication to give a realistic value of their non-current assets on the balance sheete.
Define a patent on a balance sheet.
Patents can also be classed as fixed assets on the balance sheet. A patent gives a business the right to use a new invention or poduct, and prevents other businesses from using the same invention or making the same product without permission for 20 years. Businesses can sell patents to other companies, so they are an asset on the balance sheet.
Define a fixed assest on a balance sheet.
When one business buys another, the buyer might pay more for the business than just the value of its assets, because it has a good reputation, good location or established customer base, etc. The extra money is included on the buyer’s balance sheet as a fixed asset, called goodwill.
Define current assets on a balance sheet.
Current assets are assets that the business is likely to exchange for cash within the accounting year, before the next balance sheet is made. Current assets include ‘receivables’ (or debtors’ - money owed to the business by products, that will be sold to customers.) All the current assets are added togeher to give the ‘total current assets’ value on the balance sheet.
