What is a balance sheet? Watch our video to find out.
The balance sheet, basically, states all of your assets and liabilities at a given point of time, usually at your year end.
So, it will show everything you own and everything you owe, your own assets, so fixed assets, whether it’s plants or machinery, cars, it’s office equipment.
You’ll have debtors, you’ll have people who owe you money, your customers, and the likes.
You might have stocks, if you deal in goods, you’ve bought some stuff you haven’t sold yet, and that’s sitting on your premises.
Cash is also an asset and then, there are people you owe money to, your suppliers. You might have some loans, the bank if you’re overdrawn.
Then, you add all of those up and, basically, at the bottom you get to an amount that your business is worth at this day, so your total assets, less your total liabilities.
Now it’s called a balance sheet because when you get to that figure, that’s actually been funded by something and it’s at the bottom of the balance sheet.
You actually get that figure again but made up of where it came from and that will be the shares in the company. And then usually, the profit/losses made over the years that funded it.
Now, unlike a profit/loss account, which is a movie, a balance sheet is a photo. It’s a snapshot at given point in time. And it is mainly facts. Again, there are some accounting assumptions in there, but most of it is fact.
You can go and touch it, so, if it says that you have this amount of cash, there’ll be a bank statement or something to back it up and that’s the same for pretty much every figure in the balance sheet.