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(8)-FINANCIAL STATEMENTS - THE BALANCE SHEET

Friday, October 23, 2009

Financial Statements – The Balance Sheet

Balance sheet is a statement of the liabilities, capital and assets of a business at a given moment in time. A balance sheet is prepared to show the liabilities, capital and assets as at the end of the accounting period to which the financial accounts relate.


Liabilities

We define liabilities in our previous post,
The various liabilities should be itemized separately; in addition a distinction is made between current liabilities and long term liabilities.

Current Liabilities

Current liabilities are debts of the business that must be paid within a fairly short period of time.
Example-

  • Loans repayable within one year
  • A bank overdraft
  • Trade creditors
  • Accrued charges
  • Taxation payable

Long Term Liabilities

A long term liabilities is a debt which is not payable within the short term and so liability which is not current must be long term.
Example-

  • Loans which are not payable for more than one year, such as a bank loan or a loan from an individual to a business.
  • Debentures or debenture loans.
  • A mortgage loans.

Assets
We define assets in our previous posts.

Asset in the balance sheet are divided into two groups, as fixed assets and current assets.

Fixed Assets

A fixed asset is an asset acquired for continuing use within the business. A fixed asset is not acquired for sale to a customer. To be classed as a fixed asset in a balance sheet, it must be used by the business and the asset must have a life in use of more than one year.

Assets classified as

  • Tangible fixed assets
  • Intangible fixed assets
  • Long term investments
    A tangible fixed asset is a physical asset and an Intangible fixed asset is an asset which does not have a physical existence.

Current assets

Current assets are either items owned by the business with the intention of turning them into cash within one year or cash including money in bank, owned by the business and they are continually following through business.
Examples-

  • Stocks
  • Debtors
  • Cash

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