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Understanding Business Balance Sheets for Financial Clarity

Learn how to interpret and construct balance sheets to assess a business's financial health at a specific point in time. This lesson covers the layout and components of balance sheets, including assets, liabilities, and equity.

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Understanding Business Balance Sheets for Financial Clarity

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  1. OCR Level 3Cambridge Technicalsin Business Lesson Element Unit 4: Business Accounting Layout of a Balance Sheet

  2. Balance sheet The balance sheet shows the financial state of the business at any one moment in time. It lists the assets and liabilities at a particular date, but unlike the profit and loss account is not part of the double entry bookkeeping system.

  3. Balance sheet The balance sheet is an ‘as at’ statement and is therefore correct only for that moment in time. For example: Name of Business Balance sheet as at 31st December 2013 The following slides show the correct layout of the balance sheet.

  4. Layout Balance Sheet of Brown & Co As at 31st December 2013 £ £ Fixed Assets Premises 80,000 Vehicles 10,000 90,000

  5. Layout £ £ Current Assets Closing Stock 4,000 Debtors 3,000 Bank 5,000 Cash 100 12,100

  6. Layout £ £ Current Liabilities Creditors (6,100) Net Current Assets/Working Capital6,000 Net current assets are then added to fixed assets 96,000

  7. Layout £ £ 96,000 Less Long Term Liabilities Loan (6,000) Net Assets 90,000

  8. Layout £ £ Financed by: Owner’s Capital 80,000 Add Net Profit 26,000 106,000 Less drawings (16,000) Equity 90,000

  9. Thank you for using this OCR resource. Other OCR resources are available at www.ocr.org.uk To give us feedback on, or ideas about, the OCR resources you have used e-mail resourcesfeedback@ocr.org.uk

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