A Balance Sheet Is A Financial Statement Of Assets And Liabilities

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A Balance Sheet Is A Financial Statement Of Assets And Liabilities Powered By Docstoc
					Fixed assets are the long term items the business owns which the business has
acquired and uses to generate business over a number of years. Fixed assets consist of
tangible items such as land and buildings, plant and machinery, fixtures and fittings,
vehicles and computers.

The numerical value of the fixed assets shown in the balance sheet represents the
original cost of those items less the amount that has written off as accumulated
depreciation. Depreciation is the amount that management has decided to reduce the
net worth of the assets as those assets are used and also serves to put aside from the
declared management profits that amount which would often be required at some
future date to replace those assets.

Fixed assets include a category known as intangible assets. An intangible asset is a
long term acquisition by the business that may not be a physical item. Intangible
assets would include items such as goodwill which is an amount of money the
business has paid out to acquire another business or certain rights.

Other intangible assets would be investments in royalties, trade marks and patents.
Items the business has bought to support and extend its business empire. Long term
investments such as loans, debentures and shareholdings would also be regarded as
intangible assets.

Current assets are the items the business owns which can change from day to day and
provide a snapshot of the asset liquidity of the business. Current assets include stock
which will be made up of both finished stock available for resale, work in progress
and raw materials.

Other current assets include debtors which is the short term money owed to the
business often from clients and customers who have received credit terms. Debtors
may also include money the business has paid out in advance of the liability,

If the business has a credit balance at the bank then this is also included in current
assets as would be a credit balance on a business credit card, cash in hand and other
short term investments the business can quickly turn into cash.

Current liabilities are normally shown immediately under the current assets as the size
of each balance is an indication of the liquidity of the business.

Current liabilities represent the short term debts of the business being amounts owing
that should be repaid within one year which is before the next balance sheet is
required for publication by most companies.

Current liabilities include trade creditors which are the short term debts owed by the
business to its suppliers and other creditors since it is normal practise to separate debts
owed to the tax authority such as vat, tax deductions from sub contractors, income tax
and national insurance liabilities and other corporate taxes.

If the business has short term loans repayable within one year these items would be
included with items such as bank overdrafts and other short term financial

Long term debts and financial agreements including director loan accounts which do
not have a short term repayment plan would be long term liabilities. Creditors are also
included in long term liabilities where there is an agreement for repayment longer
than one year.

The final section of the balance sheet concerns the capital of the business. While the
owners of that capital such as the shareholding regard the item as an asset to
themselves for the business it is a long term liability as the business effectively owes
that money to its shareholders as is the case of retained profits and reserves which is
also owned by the shareholders. The total of the assets side of the balance sheet and
the liabilities side must always be the same. This is because to produce a balance
sheet double entry bookkeeping is used to record all financial transactions. So
whenever an accounting entry is made it is made twice to reflect the action and

An example of double entry bookkeeping would be purchase of stock from a supplier.
The stock acquired is an asset while until paid the amount invoiced by the supplier is
a debt, the creditor and a liability. In accounting terms the transaction is recorded by
debiting the stock account and crediting the trade creditor account.

Alternatively when goods are sold by the business the double entry bookkeeping
would be to debit the customer account, the debtor, as the proceeds owed by the
customer is now an asset. The equal and opposite financial record being to reduce the
stock value since those goods are now sold and no longer an asset of the business.