03: Understanding balance sheets
The balance sheet is a financial statement that details what your company owns by way of assets and what it owes by way of liabilities. It forms part of a limited company’s annual accounts, and is used alongside the profit and loss and cash flow statements both to assess the worth of your business at a particular moment in time and to act as a valuable management tool.Balance sheet items include:
- Fixed assets – assets which the company intends to hold for the long term, eg buildings, plant, machinery and furniture and equipment. They are shown at their depreciated rates.
- Current assets – assets which the company expects to turn into cash within the next twelve months, eg stock.
- Current liabilities – the total amount of money the company expects to pay to its creditors in the next twelve months, eg supplier debts.
- Long-term liabilities – eg long-term loans.
- Shareholder funds – includes share capital and reserves including retained profit.
