Balance Sheets, Depreciation, Capital & Revenue Expenditure

Balance Sheets

Balance sheets are financial statements that record the assets and liabilities of a business at a specific point in time

Assets – items owned by a business

Fixed assets – items owned by a business expected to be retained for at least one year e.g. buildings

Current assets – items that are expected to be turned into cash in the next year e.g. cash, stock

Liabilities – monies owed by a business

Current liabilities – debts owed by the business payable within a year e.g. creditors

Long term liabilities – debts owed by the business which wont be repaid within the next year e.g. bank loan

Balance Sheet Rules

Assets = Liabilities

Total Assets = Fixed assets + current assets

Liabilities = Share capital + borrowings + other creditors + reserves

Capital and Revenue Expenditure 

Capital expenditure – spending on items that can be used time and time again in the production process (fixed assets)

Revenue expenditure – meets current day-to-day expenses e.g purchase of raw materials and the payment of wages

Depreciation

The decrease in value of assets over time

This is shown as an expense on the profit and loss account

Fixed assets will be depreciated in value on the balance sheet

Two methods:

• Straight line
• Reducing