The contents of a Balance Sheet/Statement of Financial Position

////The contents of a Balance Sheet/Statement of Financial Position

The contents of a Balance Sheet/Statement of Financial Position

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.

By |2017-01-17T11:14:45+00:00March 6th, 2016|Notes, Ordinary Level Notes, Principles of Accounts Notes|Comments Off on The contents of a Balance Sheet/Statement of Financial Position

About the Author:

He holds an Honours in Accountancy degree from the University of Zimbabwe. He is passionate about technology and its practical application in today's world.
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