Balance sheet

(Statement of Financial Position)

 It Shows the overall value, thus financial position of a company at a specific date
 Includes value of assets, liabilities, and capital employed
 Shows where a firm’s money came from and how it was spent
 Balance sheets are useful if there’s a prior balance sheet to compare with
 Net assets = Liabilities + Owner/Shareholder’s equity
 Balance sheets comprises
Title on top: Balance sheet for (Company) as at (Date)
Assets: are items owned by a business.
ᴥ Fixed Assets: Items purchased for business use (not for sale in the near
future)
 Tangible – physical
 Intangible – non-physical assets (e.g. brand name,
goodwill, patents, etc.)
 Investments – medium to long term investments or
government bonds
ᴥ Current assets: Are short term assets that can be easily converted to cash in a
period of less than one year.
 Inventory (Stock)
 Debtors (Trade Receivables)
 Bank
 Cash
Liabilities: are debts owned by a business.
ᴥ Current Liabilities: are short term debts that should be paid in a period of
less than one year
 Creditors (Trade Payables)
 Bank Overdraft
Net assets = Working capital + Fixed assets
ᴥ Capital and reserves (shareholder’s equity)
1. Share capital – money raised through the sale of shares
2. Retained profits – money left for business use (usually based on the
current income statement)
3. Reserves – proceeds from the retained earnings from previous years;
may also include capital gains on fixed assets
4. Loan capital
Net assets = long-term liabilities + owner’s equity
Therefore, the source of funds matches the use of funds
 Types of intangible assets:
 Trademarks
 Intangible asset legally preventing others from using a business’ logo, name,
or other branding
 Copyrights
 Protects the author’s ownership of his work
 Legal right to publish one’s own work
 Patents
 Grants a company the sole right to manufacture and sell an invention for a
period of time, usually 20 years
 Only inventions that are new, not obvious, and not a combination of previous
inventions, can be patented
 Utility model
 Grants a company the sole right to manufacture and sell a new item, but for a
shorter period of time, usually 7 years
 Different from a patent – a utility model can simply be a new way of using
an existing item
 e.g. using a bucket as Chickenjoy container
 Branding
 Set of intangible assets, impressions, and reputations associated with a name,
brand, or logo, that differentiates it from competitors
 Goodwill
  The established reputation of a business regarded as a quantifiable asset
 Represented by the excess of the price paid at a takeover for a company over
its fair market value
 Limitations of income statement and balance sheet
 Takes time to prepare (could have lost on the way)
 Needs comparison with historical records
 The data is purely quantitative
 Auditing – process of examining and validating financial accounts by an external
entity to protect all stakeholders