Balance Sheets

Balance sheets are a key financial statement and learning the layout of these is a key to success in A Level Accounting.  They are a snapshot AT a point in time.  However there is no way you can expect people to remember the layout is there??  There is and it involves Alchemy (magic). 

    Assets – things a business owns

 – Liabilities things a business owes

= Capital – the owners investment

When you make yourself a sandwich you have bread on the top and bottom to hold the filling in.  Being an Accountant I’m a bit odd so I recommend a Non-Current Sandwich!

Bread                 Non Current Assets – usually kept for more than 12 months

Current               Current Assets – to be turned into cash within 12 months

Current               Less Current Liability – to be paid within 12 months

Bread                 Less Non Current Liabilities – do not need to be paid back within 12 months

= Net Assets (assets - liabilities)

You now have most of the key headings in place so it’s a question of deciding what goes where!  This is where practice comes in!

Capital

The Capital section is relatively straightforward: -

Opening Capital – what the business was worth at the start of the year

Add net profit (profit makes the business worth more)

Add capital injections (when the owner puts money in it is worth more)

Less drawings (taking money out makes it worth less)

Closing capital

Key notes to remember

Show all workings – some adjustments are complex and you need to show us how you got to your answer – no workings means you just lost 5 marks (or a full grade) – Easy Marks!

A balance sheet is AT a point in time.  The title is quite often in the question unless it tells you the balance sheet is wrong! An easy mark!

Underline all the key headings and use columns – it is not a shopping list!

Net Current Assets (working capital) – this is the total of your current assets minus the total of your current liabilities.  It goes in just after current liabilities.

Net Current Assets is often worth a mark

Depreciation is taken away from Non Current Assets: – is your car worth more the more you use it?  Of course not!  Easy mark!

Don’t move things around until it balances – you will probably reduce the marks you are getting and waste time!

Final note– get a printed copy of a balance sheet (there is one below if you wish ) and cut it up line by line and then practice putting them in order.  Keep it in an envelope to keep it neat.  If you do this once a day for three/four weeks you will crack it!

Practice past papers – use the ones in your class but also download some from your exam board website!