Balance sheets

A balance sheet shows the value of a business. It shows what it owns and owes, its assets and its liabilities [Liabilities: Everything a firm owes. ] on a particular date.

Look at a balance sheet for Go Faster Sports.

Make sure you understand these business terms:

• Fixed assets shows the current value of major purchases that help in the running of the business, like delivery vans or PCs. In this case it is £40,000. This amount should either allow for depreciation in value, or show depreciation being subtracted on the balance sheet.

• Current assets shows 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. Here the amount comes to £30,000.

• Current liabilities shows the short-term amounts that the firm owes. In this case they may have a short-term loan for £5,000.

  To calculate the net current assets, the current liabilities are subtracted from the current assets:

  £30 000 - £5,000 = £25,000

  This amount is added to the fixed assets value to give the net assets total:

  £40,000 + £25,000 = £65,000

• Business finance All businesses have to be financed. Initially this comes from the owners through the capital they invest, or from taking out long-term loans. Later on, it could be from share capital. All the financing has to be shown in this section of the accounts, and is added together to give the value of the firm. In this case, the only financing is the capital and the net profit for the year:

  £45,000 + £20,000 = £65,000

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