Balance sheets for limited companies
Last Updated on 26 June 2020
A balance sheet is a snap-shot of a business’s financial situation. It is usually the last thing to be put together at the end of a business’s financial year.
A balance sheet is like a set of scales which have the same amount on each side. The main rule is:
Balance sheets have to balance!
On the left-hand side we put everything the business owns. These are called ASSETS.
On the right we put anything the business has borrowed or owes to someone else. These are called either CAPITAL or LIABILITIES.
CAPITAL is money that is owed to the owner (or owners) of the business. LIABILITIES are what is owed to other people or other organisations.
If we put something on one side, we also have to put something on the other side. This ensures the sheet balances.
A balance sheet only works if you remember that the limited company is separate from anyone who owns it.
The finances of a company must be considered separately from the finances of the owner.
Posted on 26 June 2018