• Balance sheet = statement of assets, liabilities and capital at a particular date.
• It shows what the business owns and what it owes.
• Formal purpose: show sources of funds as liabilities and uses of funds as assets.
• Long-term sources appear as long-term liabilities; short-term sources as current liabilities.
• Long-term uses appear as fixed assets; short-term uses as current assets.
• Think of a balance sheet as a financial 'snapshot' at a given date.

6.1 Significance of the Balance Sheet

• Shows the business's basic financial structure.
• Shows proportion of funds borrowed versus provided by shareholders.
• Shows how much capital is long-term and how much may be called in at short notice.
• Shows how much money is tied up in non-productive assets and how much is used to generate profit.
• Fixed assets include land/buildings, plant/equipment, fixtures/fittings and company vehicles.
• Current assets include stock, debtors and cash.
• Long-term liabilities include loans with more than a year to run.
• Current liabilities include creditors, tax due and overdrafts.
• 'Financed by' commonly includes issued and paid-up share capital and revenue reserves.
• Management can use the balance sheet to assess stock levels, debtor collection, borrowings and required profit.