The Balance Sheet is a table listing all the assets (something a company owns or owed by someone else) and liabilities (something owed and expect to pay in due course). Assets are split into fixed (e.g. buildings, machinery, vehicles, etc.) and current (i.e. expected to sell or turn into cash within one year - e.g. stocks, amounts owed by customers) assets. Liabilities are also split into current (i.e. expect to pay within the next year – e.g. amounts owed to creditors) and long term (i.e. expect to have to pay, but not within the next year – e.g. loans from banks).
The Balance Sheet will show:
• Whether a business is solvent and able to trade on an ongoing basis.
• How a business is financed.
• The capital that is employed into a business.
• How quickly assets can be turned into cash.
It is important to remember that a Balance Sheet:
• Does not show the profitability of a business; this is demonstrated in the Profit and Loss account.
• Does not reflect the true market value of assets, which may be more or less than the figures given on the Balance Sheet.
• Does not show the market value of a business; this depends on profitability and the current values (as opposed to costs) of assets.
• Is a snapshot of the business on the fiscal year end date.