Business Accounts - The Balance Sheet

Question 1

What is the balance sheet?

Answer 1

Financial statement showing the assets, liabilities, and capital of a business at a specific point in time, typically at the end of the accounting period.

Question 2

How does a balance sheet differ from a profit and loss account?

Answer 2

A balance sheet is a snapshot taken on one specific date, whereas a profit and loss account summarises income and expenses over a period e.g. a year

Question 3

What are the main pieces of information provided by a balance sheet?

Answer 3

1. Net worth or net asset value (NAV) of the business
2. Capital invested in the business to achieve that net worth

Question 4

Why must both halves of the balance sheet balance?

Answer 4

Because the assets funded by the capital (and liabilities) must always equal the sources of that funding, ensuring the equation: Assets - liabilities = Capital

Question 5

What trial balance entries are included in a balance sheet?

Answer 5

Only asset, liability, and capital accounts - not income or expense accounts - these go in the profit and loss account

Question 6

What is the net book value of a fixed asset?

Answer 6

The original cost of the asset minus accumulated depreciation to date

Question 7

How is NAV calculated?

Answer 7

Net current assets (current assets - current liabilities) - long term liabilities = NAV