The balance sheet contains several items that have to be explained. Image credit alignmt.com

The balance sheet contains several items that have to be explained. Image credit alignmt.com

ZIMSEC O Level Principles of Accounts Notes: The contents of a Balance Sheet/Statement of Financial Position

  • While a Balance Sheet could just be presented as a listing of the credit and debit balances at a given date
  • It would be more useful to record the information in a consistent and meaningful way
  • This would allow stakeholders to quickly obtain the information that they are looking for in the books
  • The following items are recorded in a typical Balance Sheet:

Assets

  • These are shown under two headings:
  • Fixed Assets and Current Assets

Fixed Assets

  • These are assets that were not bought for resale but
  • are to be used in the business
  • are expected to be retained by the business for a long period (of more than one year from the Balance Sheet date)
  • They are also known as Non-Current Assets
  • Examples of Fixed Assets include: Land, Buildings, Motor Vehicles, Fixtures and Fittings etc
  • They are shown first in the Balance Sheet
  • Items that are expected to stay in the business longer are shown first for example:
  • Land
  • Buildings
  • Motor Vehicles
  • Fixtures and Fittings etc

Current Assets

  • Are assets those Assets that are likely to change in the short term and certainly within 12 months of the Balance Sheet date
  • These include items bought for resale (Stock), amounts owed by the business’s debtors (Debtors also known as Receivables), Cash at the Bank as well as Cash in hand
  • These items are recorded in increasing order of liquidity i.e
  • Those items that take longer to convert to cash are listed first for example:
  • Stock
  • Debtors
  • Bank
  • Cash
  • Naturally Cash comes last as it is the most liquid asset
  • Since Debtors can always be factored (i.e for cash) they appear after stock!

Liabilities

  • There are two categories of liabilities:
  • Long term/Non-current liabilities and
  • Current Liabilities

Current Liabilities

  • These typically appear before the Non Current Liabilities in the Balance Sheet
  • They are items that have to paid within a year of the balance sheet date.
  • Examples include bank overdrafts, amounts due to creditors for the purchase of goods for resale.

Non Current Liabilities

  • Are also known as Long term liabilities
  • They are items that have to be paid more than a year after the balance sheet
    date.
  • Examples include bank loans, loans from other businesses and other types of instruments such as Debentures in Limited Liability businesses

Other items

  • The Balance Sheet also includes the figures for Capital, Drawings and Profit for the year.
  • The difference between Current Assets and Current Liabilities is known as Working Capital/ Net Current Assets

To access more topics go to the Principles of Accounts Notes.

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