Balance sheet

A balance sheet shows the value of a business on a particular date. A balance sheet shows what the business owns and owes (its assets and its liabilities).

Assets

Fixed assets show the current value of major purchases that help in the running of the business, like delivery vans or PCs. In this case £150,000 of fixed assets are owned. Current assets show the cash or near-cash available to the firm. This includes stock ready to sell, money owed to them by debtors and cash in the bank. There are £25,000 worth of current assets.

Deducting all the current liabilities from the total amount of fixed and current assets gives the value of the business on the day the balance sheet was drawn up. This business is worth £75,000, financed by £75,000 of share capital and reserves. Capital and reserves are in effect liabilities, because the firm owes this money to the owners. What a firm owns, it owes.