Components of a Balance Sheet

Topics: Generally Accepted Accounting Principles, Inventory, Balance sheet Pages: 2 (589 words) Published: December 4, 2012
A balance sheet is a statement businesses produce that outlines their assets and liabilities. It is a snapshot of their fixed assets, current assets, current liabilities and long term liabilities for a specific moment in time such as the end of a financial year. Using these figures, a business is able to calculate their net working capital; how much the business is worth, whether it can afford to expand and if it is a good venture for investors.

There are different groups of people who are interested in the balance sheet, they are; the shareholders, the bank and any future investors. The balance sheet is usually presented alongside one from an earlier point in time; usually the previous year so they can be compared, to see the progress the business has made. Moreover, limited companies must produce a balance sheet for HM Revenue & Customs and Companies House annually.

The top half of the balance sheet usually shows the business’s assets and liabilities. Fixed assets are long term, tangible assets that are used regularly and are necessary for the operating of the business and they are not expected to be converted into cash quickly; the current year. Examples of Giddy Kids fixed assets are their property; play system and building and kitchen equipment. On Giddy Kids balance sheet for 2006 there is no depreciation because it was produced on the first day of trading when all the equipment was brand new whereas for 2007, the balance sheet was for the last day of the year.

Current assets are the opposite of fixed as they can be quickly converted into cash through sales or can be consumed within a short period of time; usually a year. Some examples of Giddy Kids current assets are their food stocks, bank account and debtors.

Current liabilities are payments that must be made within 12 months. Examples of current liabilities include short term debt and interest on long term debt and Giddy Kids’ could be bills owed to suppliers and creditors or an overdraft....
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