SEARCH, INDEX, UPDATES, CONTENTS, UNDERSTANDING, BASIC ACCOUNTS, BALANCE SHEET
A Balance Sheet is a statement of balances. In reviewing any Balance Sheet, you must consider the real value of each asset and liability in the circumstances which you are considering.
Prior to the Companies Act 1967 it was common for Balance Sheets to be laid out on two pages. The total of the page of assets equalled the total of the page of liabilities. A Balance Sheet is now normally laid out in the following format (with comparative figures which are not included in this example) -
| £ | £ | |
| Fixed Assets - | ||
| Intangible Assets | 20,000 | |
| Tangible Assets | 225,175 | |
| 245,175 | ||
| Hire Purchase Borrowing | 55,210 | |
| 189,965 | ||
| Current Assets - | ||
| Stock & Work In Progress | 19,200 | |
| Debtors and Prepayments | 65,842 | |
| Cash at Bank & in Hand | 1,113 | |
| 86,115 | ||
| Current Liabilities - | ||
| Hire Purchase Borrowing | - | |
| Trade Creditors | 25,817 | |
| Other or Sundry Creditors | 1,200 | |
| Taxes and Social Security Costs | 8,610 | |
| Accruals | 5,240 | |
| Bank Overdraft | 34,123 | |
| 74,990 | ||
| Net Current Assets | 11,125 | |
| Net Assets | 201,090 | |
| Representing Capital Accounts - | ||
| Partner A | 185,630 | |
| Partner B (see example) | 15,460 | |
| 201,090 |
It will be seen from the above that total assets do equal total liabilities.
In the above example Hire Purchase Borrowing appears in two places. It is commonly deducted from the Fixed Assets to which it relates in Sole Proprietor or Partnership Accounts, but is shown under Current Liabilities in Limited Company Accounts.
The ratio of Current Assets to Current Liabilities is important to many businesses. The attitude of its bank to any overdraft affects this. Banks like overdrafts to be temporary in nature, but sometimes they are a permanent form of borrowing. Not many businesses achieve the text book ideal of Current Assets being 2:1 to Current Liabilities, and that may not be the ideal for any particular business.
Accounts sometimes show a bank overdraft when the bank account is not overdrawn and there are no overdraft facilities - for an explanation see Bank Reconciliation.
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