More About Accounts – Balance Sheet


Photo no (39)What’s a Balance Sheet?

A Balance Sheet is a statement of the assets and liabilities of a business or entity at a point in time, expressed in money. Assets are things owned by the business. Liabilities are things owed by the business.

Although the contents and layout may vary according to the size and nature of the entity, generally speaking, a Balance Sheet will contain the following sections:

Fixed Assets

Current Assets

Current Liabilities

Long Term Liabilities

Owner’s Capital or Investment in the Business

Fixed Assets are assets held over a long period of time (more than one year). They are generally, but not always tangible in nature, such as premises, furniture and fittings, motor vehicles. Fixed assets also include long term investments.

Current Assets are those owned by the business, that are likely to be held for less than one year, such as bank accounts (which change day to day) or outstanding monies owed by clients (known as debtors.)

Current liabilities are those debts due by the business that are payable within the next year, such as outstanding bills for services (creditors) or short term bank borrowings (overdraft or short term loan.)

Long term liabilities are those amounts payable by the business in more than one year, such as longer term bank loans.

The extent to which there are more assets than liabilities, represents the owner’s accumulated capital or equity in the business. This includes any direct investment in the business, through money put in, and accumulated profits, less any amounts withdrawn from the business for the owners own use (drawings.)

Together with the profit and loss account (or income and expenditure account), the Balance Sheet shows a reader how healthy a business is financially at any point in time.

For more information about financial accounts please see my post Accounting 101.