A balance sheet records what the business owns and owes
The three (3) main components in a balance sheet are;
Assets - Value of items that belongs to the business
Liabilities - Value of amount owed by the business to other entities
Capital - Value of amount invested in the business
Assets
Assets can be categorized as current assets and non-current assets. Current assets are items owned by the business that can be made available quickly to be used to pay short-term debts or day-to-day cost of operations. They are cash in the bank, inventory of goods and accounts receivable.
Non-current assets are items owned by the business that is of high value and difficult to disposed off, such as vehicles, buildings, machines and equipments. These assets are considered as capital investment that is meant to be utilized long-term.
Liabilities
Liabilities are also categorized as current liabilities and non-current liabilities. Current liabilities consist of short-term debts that needs to be repaid from within a month to a year. These are usually owing to suppliers who provided trade credit and overdrafts.
Non-current liabilities are long-term debts like mortgages or commercial loans. These amount loaned would need more than a year to fully repay.
Capital
Capital is the value of investment invested into the business. For incorporated businesses such as Private Limited or Public Limited companies, capital is known as shareholder's funds as ownership of these type of business organizations are measured by the number of shares held by an individual or entity. As such for a sole trade or partnership,
TOTAL ASSETS = LIABILITY + OWNER'S CAPITAL
While for an incorporated business,
TOTAL ASSETS = LIABILITY + SHAREHOLDERS' FUND
RELATED CONCEPTS
Shareholder funds
Capital
Asset
Liabilities
Working capital
PAST YEAR QUESTIONS
What is meant by ‘non-current liabilities’? (2 marks) May/June 2018/11 & Oct/Nov 2019/13
Define ‘working capital’. (2 marks) May/June 2020/13