Learn: Balance Sheet - Purpose and Layout

Welcome!Great to see you again! Building on your knowledge of budget variances and performance analysis, today we'll explore the Balance Sheet. This topic will help you understand how businesses measure their financial position.

What is a Balance Sheet?A Balance Sheet is a financial statement that shows a business's assets, liabilities, and equity at a specific point in time. It helps stakeholders understand the financial health of the organisation.

Why is the Balance Sheet important?The Balance Sheet is crucial because it provides insight into what a business owns (assets), what it owes (liabilities), and what is left for the owners (equity). This helps in decision-making, such as securing loans or attracting investors.

Key Components of a Balance SheetThe Balance Sheet has three main sections: Assets, Liabilities, and Equity. These sections are organised under the accounting equation: Assets = Liabilities + Equity.

AssetsAssets represent what the business owns. They can be divided into current assets (e.g., cash, inventory) and non-current assets (e.g., property, equipment).

LiabilitiesLiabilities are what the business owes to others. These include current liabilities (e.g., accounts payable, short-term loans) and non-current liabilities (e.g., long-term debt).

EquityEquity represents the owner’s share of the business after liabilities have been subtracted from assets. It includes retained earnings and capital invested by the owners.

How is the Balance Sheet structured?The Balance Sheet is organised into two sides: Assets on one side and Liabilities + Equity on the other. These sides must balance according to the accounting equation.

Review Time!Great work! You've learned about the Balance Sheet’s purpose, components, and structure. Let’s test your understanding with a few questions.