The Balance Sheet
This article explains the basics of the balance sheet. The numbers preceding each category are relevant to the notes following the Balance Sheet table below. The number in brackets e.g. (25,000) represent a minus figure.
A Balance Sheet (BS) is a financial statement at a given point in time. The BS will show you how the company is funded i.e. in Capital & Reserve by current trading profits and capital invested by the owners, and how the funding is currently being used i.e. stock, debtors, buildings, cash etc.
A working balance sheet example can be seen below:
| 2002 | 2001 | ||||
|---|---|---|---|---|---|
| N | £ | £ | £ | £ | |
|
01.Fixed Assets |
1 2 |
150,000 320,000 90,000 560,000 410,000 60,000 470,000
|
200,000 50,000 90,000 340,000 025,000 315,000 305,000 10,000 315,000
|
110,000 160,000 60,000 330,000 315,000 45,000 355,000
|
170,000 25,000 (25,000) 170,000 012,000 158,000 148,000 10,000 158,000
|
| 02.Tangible Assets | |||||
| 03.Intangible Assets | |||||
| 04.Current Assets | |||||
| 05.Stock | |||||
| 06.Debtors | |||||
| 07.Cash Bank/In Hand | |||||
| 08.Total | |||||
| 09.Current Liabilities | |||||
| 10.Creditors/Suppliers | |||||
| 11.Loans/Bank | |||||
| 12.Total | |||||
| 13.Net Current Assets (8-12) | |||||
| 14.Total Assets (2+3+13) | |||||
| 15.Creditors | |||||
| 16.Amounts due after 1 year | |||||
| 17.Total Net Assets (13-16) | |||||
| 18.Capital & Reserves | |||||
| 19.Profit & Loss Account | |||||
| 20.Share Capital | |||||
| 21.Share Holders (19+20) | |||||
The fundamental, and permanent situation is that ‘Net Assets’ (No.17 that represent how you are using the funding), must equal ‘Share Holders Total’ (No. 21 representing where the funding comes from).
‘N’ NOTES : A ‘Note’ to the Balance Sheet (or Profit and Loss) gives a breakdown of the amount stated in a particular line. The Notes to the Accounts are part of the published accounts of a company: i.e.
| Note | £ | £ | |
|---|---|---|---|
| 02.Tangible Assets | 1 | 200,000 |
170,000 |
| 03.Intangible Assets | 2 | 50,000 |
25,000 |
|
Would read in the Notes to the Accounts: |
|||
| 1 Tangible Assets | Freehold land and buildings | £150,000 | |
| Plant and Machinery | £ 30,000 | ||
| Motor Vehicles | £ 20,000 | ||
|
————– £200,000 |
|||
|
2 Intangible Assets |
|||
| Patents & Trademarks | £ 40,000 | ||
| Internet Domain Name | £ 10,000 | ||
|
————- £ 50,000 |
|||
Guidance Notes
- 01. Fixed Assets
-
- 02. Tangible
- Land, buildings, plant, machinery, fixtures & fittings
- 03. Intangible
- Goodwill, development costs, licences, patents, trade marks, web site domain names
- 04. Current Assets (05, 06, 07, 08)
- Stock, work in progress, raw materials, debtors, cash at bank & in hand, pre payments, short term investments.
- 09. Current Liabilities (10, 11, 12)
- Trade creditors, short term bank loan & leases & other finance commitments (under 1 year), overdraft, advance/corporation tax, PAYE & NI, VAT.
- 13. Net Current Assets (Otherwise known as ‘working capital’)
- This figure represents your ability to meet current cash needs, and is not an indication of your profitability (see profit & loss account). Cash flow management concentrates on this figure more than any other. If you have a negative figure you are technically insolvent. If you calculate that your company cannot get this figure into a positive position, and you have no other way of raising cash (i.e. by selling an asset), you should seek the services of an insolvency practitioner: through your accountant.
- 14. Total Assets
- This figure represents all assets, both fixed and current.
- 15. Creditors (16)
- Amounts due after one year. This can represent a bank loan, a finance agreement or a lease. The figure in this section does not show the amount due in the next 12 months under a loan, lease etc (the next 12 months is shown in 9. Current Liabilities).
- 17. Total Net Assets (Liabilities if insolvent):
- This figure represents all assets, less all liabilities.
- 18. Capital & Reserve
- If No.17 is a positive figure, then that figure is the amount of wealth that is owned by the owners of the company: the share holders. The share holders can either take a divided (i.e. for each share held, an equal amount of money per share is paid, or the full amount can be kept in the company as retained profit, and thereby help finance further growth: or a mix of the two.
- 19. Profit & Loss Account (P&L)
- The cost to manufacture and deliver your goods, or to supply your service, will be listed within the P&L account (you will notice that all the areas in the BS have nothing to do with the day to day running of a business as these are only shown in the PL account). If, after supplying your service or goods, you make a profit the P & L will show a positive figure that will then be entered in No.19.
- 20. Share Capital
- This is the amount of finance that the share holders have put into the business – like a loan to the company.
- 21. Share Holders Total
- this figure will always be equal to No.17. The worth in the company belongs to someone, not a penny more, nor less.
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