Unit 4 - Balance Sheets

This document shows where a business gets its money from and what it spends it on:

Resources owned by the firm are known as assets. There are two types of asset:

FIXED ASSETS – physical items such as buildings, vehicles and machinery
CURRENT ASSETS – their value is constantly changing – debtors, cash and stock.

Some will be supplied by the owner – capital
Some will be supplied by people outside the firm – liabilities

CAPITAL + LIABILITIES = ASSETS

This is known as the ACCOUNTING EQUATION. It must always be true because everything that the firm has must either have been supplied by the owner or from outside. The accounting equation is expressed in the Balance Sheet:

	£		£
CAPITAL	10,000	FIXED ASSETS
Current Liabilities		Building	6,000
Creditor	1,000	Current Assets
		Stock	800
		Debtor	200
		Cash	4000
	11, 000		11,000

CAPITAL – money put into the business by the owner
CREDITOR – someone who has lent money to the business
STOCK – raw materials, semi-finished goods and unsold goods
DEBTOR – someone the business has lent money to

Balance Sheets are more often shown in vertical format:

FIXED ASSETS
Building 6,000

CURRENT ASSETS
Stock 800
Debtor 200
Cash 4,000
Total 11,000

CURRENT LIABILITIES
Creditor 1,000

CAPITAL 10,000

NET CURRENT ASSETS * 4,000

*Net Current Assets = Current Assets – Current Liabilities

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