Personal Money Management 101

How to Read a Financial Statement : Balance Sheet

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The Balance Sheet is a snapshot of a business's financial position (what it owes and owns) at a particular moment in time.

Balance Sheet
Fixed Assets  
Tangible 254
Intangible 89
Investments 12
Total Fixed Assets 343
Current Assets  
Inventory 42
Debtors 62
Cash 36
Other 10
Total Current Assets 150
Current Liabilities  
Creditors 39
Accrued Expenses 6
Dividends 24
Taxation 25
Total Curent Liabilities 94
Long-Term Liabilities  
Bank Loan 18
Total Long-Term Liabilities 18
Total Assets less Liabilities 381
Shareholder's Funds  
Share Capital 212
Retained Profit 149
Revaluation Reserve 20
Total Shareholder's Funds 381

The Balance Sheet is based on the accounting equation:

Assets = Liabilities + Owners' Equity

Fixed assets are assets that a business does not buy/sell as part of its business.

Tangible assets are physical things, eg buildings, machinery etc.

Intangible assets include brand names, patents, licences, goodwill (the amount by which the price of a business exceeds its assets) etc.

Current assets are assets that can be converted to cash within a year, eg inventory (stocks of goods for sale or raw material), debtors (money not yet received for sales), investments, cash etc.

Cureent Liabilities are debts due in the next 12 months, eg creditors (money owed to suppliers), accrued expenses (phone, rent... incurred but not yet paid), outstanding dividends, tax due within next year.

Long Term Liabilities money owed but not due within next year, eg bank loans.

Net Current Assets (working capital) =
C urrent Assets - Current Liabilities.

Total Assets less Current Liabilities =
F ixed Assets + Current Assets -
Current Liabilities.

Net Assets = Total Assets - Total Liabilities.

Shareholder's funds (owners' equity) must equal net assets.

Share Capital is the money put into the business by shareholders.

Retained Profit is the cumulative retained profit from the Profit and Loss Account since the business started.

Revaluation Reserve results from a business revaluing assets (eg buildings) at current rather than original costs.