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Tony Dalton: Explaining A Balance Sheet

What is it and how does it work?

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POSTED BY ALISON MEAD ON 25/11/2019 @ 8:00AM

This week I have a fantastic guest post from Tony Dalton of Think Cash talking about the balance sheet, what it is and how it works. Take it away Tony ...

If you're wondering what a balance sheet is, then Tony Dalton can explain!

If you're wondering what a balance sheet is, then Tony Dalton can explain!

copyright: joykid / 123rf

Many people panic when faced with a balance sheet, usually because they don’t understand them. In a nutshell, a balance sheet is a snapshot of a company on a given day. That doesn’t sound like much, however, if you look carefully at it, it's going to tell you a lot about the financial health of a business.

It is a list of a company’s assets and liabilities that must balance (hence the name) with the money employed in the business including the profits or losses that the company has made up to that particular day.

The Assets appear on one side, all those items that generate income, such as:

  • stock

  • debtors

  • money in the bank

  • profits

  • fixed assets

  • prepayments - bills you have paid in advance

  • intellectual property rights

  • petty cash

The other side are those items that cost money, the Liabilities:

  • creditors

  • VAT and any other sums owed to HMRC

  • bank overdraft

  • credit card balances

  • loans

  • accruals - bills that you know that you will have to pay

The total assets are taken from the total liabilities, giving either a plus or minus figure, described as the net assets (if positive) or net liabilities (if negative).

There is then another list that shows the money the business requires to function, the total capital employed. It’s made up of:

  • share capital - the money put into the company to start it up in the first place

  • long term loans - any loans taken out to build the business

  • all the previous year’s profit or loss

The total of this list must equal the net asset/ liability figure, whatever it may be. The balancing figure is the profit/ loss figure, being the total amount of profit or loss made by the company since it was formed.

Now you have a balance sheet!

Until next time ...



ALISON MEAD

Would you like to know more?

If you'd like to know more about the balance sheet, or discover Tony Dalton's books, visit his author page on Amazon where you can find his Think Cash series of books. You can also find him on Facebook.

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About Alison Mead ...

 

Alison loves bookkeeping. She has been helping clients to be better bookkeepers in Sage 50 for over 22 years and has more recently added Xero Accreditation to her list of skills.

She specialises in a very unique hand-holding method of training, helping bookkeepers and business owners to use their accounts software as and when they need support in setting up and producing their invoices, reports and financial information.

Alison combines her role at Silicon Bullet with running two network marketing businesses and is also a Regional Leader for 4Networking as she likes to keep busy.

You know what they say, if you want something done well ask a busy person!

Telephone:

01604 420057

Website:

https://www.siliconbullet.com