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BALANCE SHEET
The balance sheet is a financial statement which shows the assets, liabilities and capital of a business on a particular date.
Items that are owned by the business or owed to the business
Is the money invested by the owners
Is the amount owed by the business
Assets, Liabilities & Capital
Assets & Liabilities
The Manager’s name
Liabilities & Capital
How much profit
Assets & Capital
The employee’s details
The flow of cash
The balance sheet shows the financial health of the business, as well as.....
Out of date
Thrown in the bin
Given to every employee
Done again
Laminated
Put on weighing scales
Sent to the government
Sold to the public
As soon as the balance sheet is produced it is....
Local Community
The environment
Your mum
Mr Fletcher
Competitors
The government
Suppliers
Shareholders
All stakeholders will be interested in the balance sheet, especially....
Assets
Current Liabilities
Liabilities
Fixed Assets
Capital
Buildings
Current Assets
Money
Items owned by the business, or owed to the business
Capital
Profit
Assets
A wise investment
Liability
Converted in to stock
A stupid idea
Put in the bank account
Money invested by the owners is.....
Liabilities
Assets
Debt
Debtors
Capital
Don’t know
Creditors
Fixed Assets
Items owed by the business are....
Why produce a balance sheet?
• It shows the owner what their investment has been used for and gives an idea of what the business is worth.
• Shows the financial health of a business.
• It shows where the money has come from and what it has been spent on.
Assets – Items owned by the business or owed to the business.
Fixed Assets – Items kept longer than 1
year. Buildings / Vehicles / equipment
Current Assets – Items kept less than 1 year
Stock / Debtors / Cash in hand
Liabilities – Amounts owed by the business
Long-term liabilitiesLiabilities due to be repaid over more than one year
Current liabilitiesLiabilities due to be repaid
in less than one year
Capital – Money invested by the owner of a business
Now your turnCreate a balance sheet using the information below for
‘MADE UP COMPANY LTD’
Premises - £100,000
Creditors - £50,000
Equipment - £ 20,000
Cash in bank - £20,000
Profit & Loss (Net profit) - £30,000
Debtors - £10,000
Stock - £5,000
Share capital - £65,000
Reserves - £10,000
WORKING CAPITAL
Working Capital can be calculated as follows –
Working Capital = Current Assets – Current Liabilities
Anything the business owns and intends not to have for more than 1 year (raw materials / stock / debtors / cash)
Anything the business owes which must be paid in less than a year (creditors / overdraft / dividends)
Working out working capitalWorking capital represents operating liquidity available to a business.
It is calculated as current assets minus current liabilities.
Working Capital = Current Assets − Current Liabilities
A company can have loads of assets and profitability but short of liquidity if its assets cannot readily be converted into cash.
Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses.
Capital EmployedCapital employed is the value of the assets that contribute to a company’s ability to generate revenue
Fixed assets + current assets – current liabilities
Balance Sheet 1• Fixed assets £• Buildings 60,000• Equipment 20,000• Total fixed assets 80,000
• Current assets• Stock 20,000• Debtors 10,000• Cash in bank 10,000• Total current assets 40,000• (Total assets = £120,000)
Balance Sheet 2
LIABILITIES£
liabilitiesCreditors -10,000
Total assets less liabilities 110,000(This is the total assets - £120,000 - minus the liabilities)
Balance Sheet 3
•Capital and reserves £
•Share capital 70,000•Reserves 30,000•Profit and loss account 10,000
•Shareholders’ funds 110,000•(This is the total amount in capital and reserves. It must equal the same amount as the total assets minus liabilities)
Balance Sheet •ASSETS•Fixed assets (assets listed)•Total fixed assets £80,000 A•Current assets (assets listed)•Total current assets £40,000B
•LIABILITIES•Current liabilities –£10,000C•Total assets less current liabilities (Net assets) £110,000A + B – C______________________________________________________•Capital and reserves (all listed)•Shareholders’ funds £110,000D
Advantages of using ICT•Spreadsheets can be used to compile profit and loss accounts, formulae can be used to perform any calculations
•The spreadsheet template can be used again and again
•Advantages include speed, accuracy, instant access to information
•The spreadsheet can be used to create graphs