Finance

Balance Sheets
Learning Objectives
• Understand what a balance sheet shows.
• Know the difference between assets and liabilities.
• Be able to construct a simple balance sheet
Asset or Liability
Vehicle Buildings Bank Loan
Machinery Computers Furniture
Overdraft Stock Debtors
Creditors Cash Brand
Recap
• If a business is like a person, what is the balance sheet like?
• How do we keep ourselves fit and healthy? And a business?
Why do we need Balance Sheets?
• The purpose of the balance sheet is to give users an idea of
the company's financial position along with displaying what
the company owns and owes.
Assets =
• Assets = Liabilities + Equity

• • Current assets (short-term): items that are convertible

into cash within one year

• • Non-current assets (long-term): items of a more

permanent nature

• As total assets these =

Liabilities +
• • Current liabilities (short-term): obligations due within
one year

• • Non-current liabilities (long-term): obligations due

beyond one year

• These total liabilities +

Equity
• Shareholders Equity or Funds

• Shareholders' equity (permanent): shareholders' investment

and retained earnings

Assets = Liabilities + Equity

 A statement showing a
company’s assets and
liabilities. Assets will ALWAYS
equal liabilities +Equity
 Balance Sheet
Versus

Income Statements and Cash Flow Forecast

A balance sheet
• represents a company's financial position for one day at its fiscal year end
• That is - the last day of the accounting period (What is this in the UAE?)

However
• the income statement and cash flow statements reflect a company's operations
for its whole fiscal or financial year - 365 days.

So
• The balance sheet is like a photographic snapshot
• and the income/cash flow statements is like a movie

Therefore

• it is more accurate, for the particular day you are observing the Balance Sheet.
Exam Questions
1. Identify one asset and one liability that Kelloggs’ (breakfast
cereals) might have. (2)

2. SNOWBALL Answers
Key Terms
• Fixed assets or Non – Current Assets
• Current assets
• Debtors
• Current liabilities
• Creditor
• Long term liabilities