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A Balance Sheet is a summary of a business' assets, liabilities and owner's equity at the end of a financial period. The Balance
Sheet is used to determine the financial position of a business by clearly showing what the business owns and what it owes.
The balance sheet is based on the accounting equation Assets= Liabilities + Owner's Equity and is divided into three major sections:
1. Assets - there are two types; Non Current Assets and Current Assets
Non Current Assets are assets that are not easily converted to cash. These include buildings, machinery, goodwill.
Current Assets are assets that are easily converted to cash and usually have a life span of less than a year. These
include Cash on Hand, Bank, Debtors and Stock.
2. Liabilities - there are two types; Long Term Liabilities and Current Liabilities
Long Term Liabilities are debts that are due for payment over a period of more than a year.
Current Liabilities are debts that have to be paid within a year's time.
3. Owner's Equity - this is the amount of capital invested into a business by the shareholders and the retained earnings
which are derived from the company's income statement. |
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