The Balance Sheet

Definition:

A balance sheet is a statement of the total assets and liabilities of an organisation in a given date, usually the last day of a financial period.

It contains information on the value of an organisation's assets, liabilities and the capital invested by the owners.

Equity

Equity is the money invested in the company or business to generate income.

It comes from two different sources:

  • Share capital

    • Provided by the shareholders through the purchase of shares

  • Reserves/Accumulated Retain Profit

    • Refers to the past profits that were kept rather than paid out as dividends

Key Terms:

Fixed Asset

Current Asset

Current Liability

Long-term Liability

Working Capital

Capital Employed

Limitations of Balance Sheets:

  • Balance Sheets tend to focus on a specific time frame of the business which could result in outdated data being used to make

  • There is no specific standard template for making balance sheets

  • Balance sheets lack specific variables such as:

    • Intangible Assets = non-physical fixed assets such as:

        • brand value, trademarks, copyrights

        • goodwill and market faith

    • Value of Human Capital

Example Balance Sheet

Created by: Ms K. Gleaves (circa. 2015)