The Balance Sheet

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 What is balance sheet ?
 Explain assets, liabilities, equity
 How to value Assets, Liability &
equity
 Where to go for more
information
 Links with other statements
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 discloses the financial position of the
entity
 reports the assets, equity and liabilities
 is a snapshot of an instant time
 shows the trend of financial position
 various formats

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•Solvency: measures relative relationships
among assets, liabilities and equity to assess
“health” of firm (financial ratios)

•Liquidity: measures ability to meet current

financial obligations as they come due
without disrupting normal business—ability
to generate cash on short-term
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 entity  money
 reliability measurement
 relevance concept
 going concern  dual aspect
 cost  accounting
period
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• balance sheet must always be in balance …

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 EQUIY $ 100
ASSETS = +
 Fixed $150 LIABILITIES
 Non-current $
70
 Current $ 40

 Current $ 30
 Others $ 10

TOTAL EQUITY &

TOTAL OF ASSETS $ 200 LIABILITIES $ 200
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 Anything the firm controls and has
value because can sell it and/or use
it to produce sellable goods/services
 Current /Liquid assets: easy to sell,
ready market for them (grain,
feeder livestock)
 Non-current/Illiquid assets: hard to
sell quickly at full value (machinery,
land, breeding livestock)
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 Obligations or debts owed; any outside claims against
one or more of your assets
 Current Liabilities
 -Financial obligations due within 1 year
 -Accounts at suppliers, farm store, etc.
 -Interest & principle on operating and long-term
loans
 -Accrued expenses: property and income taxes
 Non-Current Liabilities
 -Everything else not due in the next year
 Remaining balance on long-term debts after
deducting the current year’s payments
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 Value left after assets are used to cover all
liabilities, what you “own” in the firm
 shareholders current investment in the firm
 Equity changes for many reasons
 *Profits/losses from production activities
 *Add/withdraw capital from the firm
 *Asset value changes if use market prices
for asset valuation, e.g., land value
increases

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 Assets = Liabilities + Owners’ equity

+ $40,000 = + $40,000

Ms.
Ms. Jones
Jones opens
opens aa bank
bank account
account for
for
the
the business
business by
by depositing
depositing $40,000.
$40,000.
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 Assets = Liabilities + Owners’ equity

+ $40,000 = + $40,000

+ 15,000 = + 15,000

The
The business
business borrows
borrows
$15,000
$15,000 from
from the
the bank.
bank.
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 Assets = Liabilities + Owners’ equity
+ $40,000 = $40,000
+ 15,000 = + 15,000
$55,000 = $15,000 $40,000

Assets
Assets == Equities
Equities ++ Liabilities
Liabilities
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Vertical layout A net asset presentation (assets minus
liabilities) can be used:
Example Co. Balance Sheet
A Noncurrent assets (fixed assets)
B Current assets
C Prepayments
D Creditors – amounts becoming due within one year
E Net current assets/net current liabilities (B+C-D-
I)
F Total assets – current liabilities (A+E)
GCreditors – amounts becoming due after more than one
year
H Provisions
I Deferred income
J Capital and reserves (F-G-H)
Deferred income = income receivable before the
balance sheet date but relating to a
subsequent financial year.
 Explaine balance sheet
 Explain assets, liabilities, equity
 How to value Assets, Liability &
equity
 Where to go for more information
 Links with other statements

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