ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.
-
Upload
willa-sims -
Category
Documents
-
view
247 -
download
0
Transcript of ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.
![Page 1: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/1.jpg)
ACCOUNTING& FINANCE
Balance Sheet
IGCSE Business Studies
![Page 2: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/2.jpg)
Introduction and Key Definitions
It shows the financial position of a firm at a particular moment in time.
It shows the financial position of a firm at a particular moment in time.
what “assets” the business owns and where funds came fromwhat “assets” the business owns and where funds came from
![Page 3: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/3.jpg)
Introduction and Key Definitions
• Assets – Things owned by the business
• Liabilities – money owed to others (but not owners)
• Shareholders/ owners’ Capital – money invested / reinvested by owner(s).
![Page 4: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/4.jpg)
An example ( a limited Company’s balance sheet)
Note that net current assets are the same as “working capital and this is important as if it is low/negative a business may have cash flow problems
![Page 5: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/5.jpg)
Introduction and Key Definitions
The value of net assets gives us the value of the company. It is also equal to the shareholders/owners capital as it represents the value of their holdings in the business
The value of net assets gives us the value of the company. It is also equal to the shareholders/owners capital as it represents the value of their holdings in the business
![Page 6: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/6.jpg)
Another Example (a sole trader’s balance sheet
Drawings are the money taken from the business by the owner. It is the equivalent of dividends in a PLC
Drawings are the money taken from the business by the owner. It is the equivalent of dividends in a PLC
![Page 7: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/7.jpg)
Help decision making:Help decision making:
• Potential buyers to determine purchase price.
• Potential lenders to assess the risk involved in lending money/likelihood loan can be repaid.
Role and Purpose
![Page 8: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/8.jpg)
Help decision making:Help decision making:
• Shareholders to assess how well business is doing
• Management to identify if they are able to pay their debts off (“short term or current liabilities”)
![Page 9: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/9.jpg)
Role and Purpose
Plus all companies are legally obliged to produce a Balance Sheet (+ P & L Account).
Plus all companies are legally obliged to produce a Balance Sheet (+ P & L Account).
![Page 10: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/10.jpg)
Limitations
Can provide unrealistic picture of a business:Can provide unrealistic picture of a business:
• May not show the ‘true’ value of a business, eg skilled, highly motivated workforce, amount of customer loyalty.
• Need for independent auditors-people who come in and produce balance sheets .
![Page 11: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/11.jpg)
Explanation of Key Balance Sheet Terms
Usually last more than a year, and don’t get used up in the production or provision of a product or service.
Usually last more than a year, and don’t get used up in the production or provision of a product or service.
AssetsFixed AssetsFixed Assets
![Page 12: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/12.jpg)
Explanation of Key Balance Sheet Terms
AssetsCurrent AssetsCurrent Assets
Usually held for a relatively short period of time, ie under one year, easy to convert them into cash.
![Page 13: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/13.jpg)
Explanation of Key Balance Sheet Terms
AssetsCurrent AssetsCurrent Assets
Stock raw materials, work in progress, finished goods. Debtors individuals / business who owe the business money. Cashin bank and at hand.
![Page 14: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/14.jpg)
Explanation of Key Balance Sheet Terms
Current Liabilities
Monies owed by the business that must be paid within one year from the Balance Sheet date.
![Page 15: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/15.jpg)
Explanation of Key Balance Sheet Terms
Current Liabilities
Overdraftsarrangements to withdraw more money from bank than deposited, to agreed limit. Interest charged.
Creditorsindividuals/businesses to whom the firm owes money.
Corporation tax tax based on company profits
![Page 16: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/16.jpg)
Explanation of Key Balance Sheet Terms
Working Capital / Net Current Assets
The finance available for the day to day running of a business. Current assets less current liabilities.
In general, if current liabilities are greater than current assets, firm may struggle to meet debts as they fall due.
![Page 17: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/17.jpg)
Explanation of Key Balance Sheet Terms
Long-term Liabilities
Monies owed by a business which do not have to be settled within one year.
![Page 18: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/18.jpg)
Explanation of Key Balance Sheet Terms
Bank/building society loan eg mortgages over 12 months.
Long-term Liabilities
![Page 19: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/19.jpg)
Explanation of Key Balance Sheet Terms
Net Assets
(Fixed + Current Assets) – (Current + Long-term Liabilities).
The net value of what the company owns / is worth.
![Page 20: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/20.jpg)
Explanation of Key Balance Sheet Terms
Net Asset figure is balanced by the Shareholder’s funds.
Net Assets
![Page 21: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/21.jpg)
Explanation of Key Balance Sheet Terms
Long-term funds raised by selling shares to family members and friends (private limited companies) or members of the general public (public limited companies).
Shareholder’s Funds / Capital & Reserves
Share CapitalShare Capital
![Page 22: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/22.jpg)
Explanation of Key Balance Sheet Terms
Shareholder’s Funds / Capital & Reserves
ReservesReserves
Retained profit. All the retained profit ever made.
![Page 23: ACCOUNTING & FINANCE Balance Sheet IGCSE Business Studies.](https://reader036.fdocuments.us/reader036/viewer/2022081420/5697bfcf1a28abf838ca9b79/html5/thumbnails/23.jpg)
Explanation of Key Balance Sheet Terms
Capital Employed
Must equal Net Assets employed because any increase in assets must be funded by an increase in money to pay for it.