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In the second part of the Accounting Jargon Blog we look at the Balance Sheet and Profit & Loss Statement

 

ASSETS
An asset is an item owned by the business for use within the business (e.g. machinery) or something which can easily be turned into cash (e.g. stock or accounts receivable).  Assets appear on the Balance Sheet.

Fixed Assets
These are assets owned by the business which will be held in the business or a long time, including property, machinery and other equipment.  Fixed Assets appear on the Balance Sheet.

Current Assets
These are assets of the business which will change in value or be used up within the space of a year.  These include, cash, accounts receivable and stock.

 

LIABILITIES
This is a debt, person or bill which you need to repay.  Liabilities appear on the Balance Sheet.

Long Term Liabilities
These are expected to be paid over a period longer than 12 months such as a bank loan or mortgage

Current Liabilities
These are liabilities which will change in value or be paid off within the next year, including supplier payments, wages, taxes and short-term debts such as overdrafts.

 

Equity
This is the value of the owners’ investment in the business or the difference between a businesses’ assets and liabilities.


 

Balance Sheet
This is a financial statement which shows what the business owes, what it owns and how it has been funded at a set point in time.  A Balance Sheet is called this because it’s driven by a formula which needs to balance:

Equity = Assets – Liabilities

 

Profit & Loss Report
This report shows you the business’s income, expenditure and profit.  It can run for any period to compare sales, costs and profits from month to month and year to year.


 

I hope this has helped to demystify some of the accounting jargon you will come across, however if you need further help and assistance please do not hesitate to contact me via https://www.cactusbookkeeping.uk/contact-us/