Page 279 - Cambridge IGCSE Business Studies

22 Balance sheets

Introduction

A balance sheet is a snapshot of the business’s financial position. In this
Objectives chapter you will study the main parts of a balance sheet and understand what
stakeholders can learn about the business from the information contained in
In this chapter you will the balance sheet.
learn about:

■ the main parts of a balance
The main parts of a balance sheet
sheet

■ assets and liabilities A balance sheet shows the financial position of a business at a certain point in time.
■ how to interpret a simple It is a statement about the business on the date the balance sheet was prepared. It

balance sheet. is a record of a business’s assets and liabilities. The balance sheet also shows how a

business finances its operations.
Limited companies must, by law, produce a balance sheet at the end of every
financial year. Other types of business often choose to produce a balance sheet at

KEY TERMS

the end of their financial year as it provides useful information about the business
Balance sheet: an accounting for both internal and external stakeholders.
statement that records the assets, The layout and main parts of a limited company’s balance sheet are shown below:

liabilities and owners’ equity of a
business at a particular date.
Assets: resources that are owned Balance Sheet for Tang Toys as at 31 December 2012
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by a business.
Non-current (fi xed) assets 100
Liabilities: debts of the
Current assets 50
business that will have to be paid
sometime in the future. Less:
Current liabilities 30
Net current assets 20
Net assets 120
Stakeholders: see
Financed by:
Chapter 5, page 62.
Owner’s capital (equity) 90
Non-current (long-term) liabilities 30

Capital employed 120

ACTIVITY 22.1

Using the balance sheet above:

1 Can you see why this financial statement is called a ‘balance sheet’?

2 Net current assets is the difference between current assets and current liabilities. Can you think of another financial term
which is also the difference between current assets and current liabilities?