Balance sheets: the basics

Introduction

Your balance sheet is a financial statement at a given point in time. It provides a snapshot summary of what your business owns or is owed - assets - and what it owes - liabilities - at a particular date.

The balance sheet therefore shows how your business is being funded and how you are using these funds.

There are three ways you may use your balance sheet:

• for reporting purposes as part of a limited company's annual accounts
• to help you and other interested parties such as investors, creditors or shareholders to assess the worth of your business at a given moment
• as a tool to help you analyse and improve the management of your business

This guide explains who needs to produce balance sheets and when, the different elements within them and how to use the information from a balance sheet to assess and manage business performance.

Subjects covered in this guide

• Introduction
• Balance sheet reporting - who, when and where?
• Contents of the balance sheet
• Interpreting balance sheet figures
• The relationship between balance sheets and profit and loss accounts
• Compare balance sheets to assess business performance
• Use accounting ratios to assess business performance
• Accounting periods
• Here's how a good balance sheet helped me to improve my business

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