Download Current Assets

Terms on the Balance Sheet –
Definitions and Issues
Nursery Management
Understanding and
Managing Finance
Balance Sheet Terms
This section looks at some of the terms on
the balance sheet, how they are defined, and
the kinds of items which are included.
» Fixed Assets
» Current Assets
» Current Liabilities
» Long-Term Liabilities
Assets

Items that a business owns and have an
identified value
» For example computers or the value of the
building if the freehold is owned by the
business
Fixed Assets
These are items owned and used by the
organisation on a long-term basis




Tangible Assets = equipment, buildings, land
Intangible Assets = brands, logos, patents, goodwill
Goodwill = quality of workforce, reputation,
management, location, relationship with customers.
Goodwill only tends to be included when purchased at
an agreed price
Fixed Assets are normally valued at Cost less
Depreciation (The amount lost through ‘wear & tear’).
Current Assets
These are Items which can easily be converted
into cash (e.g. cash, stock, debtors)



Generally listed in the order in which they can be
converted into cash
Valued at cost or market price (whichever is the
lower)
Often includes “Provision for loss” (safeguard against
unsold goods or bad debts) and Prepayments (items
which have been paid for in advance)
The cyclic nature of current assets



Current assets are
cyclic; there is
movement between
the cash, stock, and
debtors items.
The stock is used eg
to feed the children
Trade Debtors
(parents) pay for the
food in their feees
The Cash is used to
buy more stock.
Stock
Cash
Trade
debtors
Current liabilities


Current Liabilities (claims) - debts which the
organisation is likely to have to pay within one year
Examples include creditors, bank overdraft, loan
interest due in next 12 months, tax, dividends owed
to shareholders.
Long-term liabilities


Long-term Liabilities (Fixed Liabilities) - debts which
the organisation will not have have to pay within one
year
Examples include hire purchase loans, mortgage and
long-term bank loans
Shareholders Funds





This is the most permanent form of funding, often
called the shareholder’s Claim, but sometimes
classed as a “Liability”,
Issued Share Capital - value of shares actually issued
Authorised Share Capital - value of shares company
may legally issue
Retained Profit (or Earned Surplus) - profit left after all
deductions have been made
Capital Surplus - money earned on disposal of Fixed
Assets
Capital employed - all the capital put into the business
(share capital, long-term loans, retained profit)
Revision Questions
Discuss the following:



How far does the balance sheet tell us about how
much an organisation is worth?
What is the main difference between Fixed and
Current Assets?
Why is money input into the organisation by
shareholders shown as a liability?
Revision Questions -Solutions

The final amount on either side of the balance tells us
how much a company is currently valued at.

Current Assets – we could get the money almost
immediately with minimum fuss.
Fixed assets would take some time and be very
disruptive.

The share capital is an amount invested in the
company by shareholders, and so is owed to them.