The Balance Sheet Explained

When going through a set of accounts with clients most people can grasp the Profit and Loss Accounts – income going in, expenses coming off = profit or loss at the end, simple but when you get to the Balance Sheet a glazed expression usually appears.

We only produce a Balance Sheet as part of your Financial Statements if it is either a statutory requirement as is the case for a limited company or for others if we feel it is necessary.  However it is only useful if you understand what the figures mean so here’s a quick low down on the main components.

Firstly the layout has to follow accounting standards so is always laid out in a similar format normally with two columns for each financial year and usually showing two years for comparison and with the categories in the following order.

Assets

An asset is simply something the business owns.

  • There are Fixed or Tangible assets – an asset that is a physical thing that isn’t going anywhere soon like a property, machinery or vehicles.
  • There are also Intangible assets – something the business owns that isn’t physical such as intellectual rights, brands & patents.

Most of these items are depreciated each year with the written down value being shown on the balance sheet.

Debtors

This means money you are owed.  Items such as:

  • Trade Debtors – your outstanding sales invoices
  • Stock – purchases you have made but not yet used
  • Prepayments – something you have paid for in advance
  • Other Debtors – such as VAT rebates not yet received or director’s loans

Cash in hand & at bank

Money the business has, it can be in the till, cash not yet banked, money in the bank.

Creditors falling within a year

This is money you owe others such as your trade creditors or suppliers and loan and HP payments due within the next 12 months.

Creditors falling due after a year

As above, money you owe but more long term such as bank loans.

So What Does It All Mean

It’s a snap shot at the balance sheet date of all the money your business has and is owed, less all the money you owe to others.  This end figure is the net assets of the business.

 

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