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:
- These are shown under two headings:
- Fixed Assets and Current 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:
- Motor Vehicles
- Fixtures and Fittings etc
- 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:
- 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!
- There are two categories of liabilities:
- Long term/Non-current liabilities and
- 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
- Examples include bank loans, loans from other businesses and other types of instruments such as Debentures in Limited Liability businesses
- 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.