[MUSIC] Okay, so we've looked at the cash flow, we've looked at the income statement. Now let's look at the balance sheet, the final statement that I expect you to produce. So after preparing the cash flow and the income statement, you're now in a position to prepare this balance sheet. A photograph, if you wish, a snapshot of the financial position at the end of the financial period, at the end of any given period. It lists with their financial values, which have been extracted from the accounting system, the assets that are owned by the business, the liabilities that are owed to the outsiders, and the investment by the owners in the business. This is what we call equity, we would expect the values of the assets and the liabilities plus the equity to equal to balance, hence the term balance sheet. We can say that the assets will equal the liabilities plus the equity. You could also swap that equation around, assets minus liabilities is equal to equity. And actually, that's effectively the format of the balance sheet. The layout, if you wish, of the balance sheet, so you see it arranged into different formats. A fuller format is dividing up the assets and the liabilities. So these assets that we have, we can divide into what we call non-current assets. Traditionally, called fixed assets, or long-term assets. Assets, things that we have that have a value that we expect to be using in the business for more than 12 months. So things like buildings, motor vehicles, equipment, land, computers. All of these long-term assets that we're not in the business of selling, but without them, we wouldn't be able to make our sales. And then we have what's called our current assets. Our current assets are those things that we own that have a value, but are constantly fluctuating. The most common examples of these would be our inventory, our stock, constantly fluctuating. The more you sell then you buy some, that get's sold and you buy some more. Another current asset is what's called your debtor or your trade receivables. We spoke about these earlier on, when you make a sell and you make a sell on credit. At any one given point in time you're going to be owed some money. That's an asset to the business, that's something that you own that has a value, a future value. So we'll need to have a recording, a record if you wish of all the people that owe us money from our sales. Our debtors, that's a current asset, and the other common current asset, of course, is your cash or bank account. As long as there's money in there, we can call it a current asset. If we add up all those non-current and current assets, we just generally call those assets. And it's those assets that will equal your equity plus your liabilities. So what do I mean by equity? Equity is the capital that the owner puts into the business plus any reserves. So, in the example of genius for instance which would look at In a moment. Genius had ordinary share capital, that belongs to equity. And if you can recall from the income statement, they also made a profit for the year. The profit that they were retaining within the business. And if you can remember, that was after they paid the dividend, so that's a reserve. Both the ordinary shares, and the profit that's retained within the business forms the equity section of the balance sheet. And the final section is your liabilities, and just like your assets, these can be divided up into two sections. Those that are long term liabilities, once again, we call them non-current liabilities. And those that are short-term, your current liabilities. An example of a non-current liability would be a bank loan. And in the example of Genius, we had bank loan that wasn't due for payment for another five years. So a non-current liability is something that you owe, that doesn't have to be paid back within the next 12 months. Those are typically a bank loan, a mortgage and then we have our current liabilities. And the most common current liabilities that you'll come across will be your trade payables or your creditors. When you purchase on credit, goods for resale, at any one given point in time, it's likely that you will owe some of that money to your suppliers. They're your creditors, your trade payables. Other common current liabilities, and if you think about Genius, is a tax that is charged for the year but has yet to be paid. And the final one, I mentioned that your bank account can be a current asset. Of course, you may have overdraft, and that's slightly confusing. Because you've got a particular thing, a bank account, that if there's money in there can be a current asset. But if it's in an overdraft, it changes and becomes a current liability. [MUSIC]
