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Hi and welcome to another lecture in discourse, and today we will talk about a very exciting topic

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called the balance sheet.

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But before we do that, let's remind ourselves with what we covered so far.

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So we started by talking about the differences between bookkeeping, accounting and finance.

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And we said bookkeeping is the recording of financial transactions.

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Accounting is the bookkeeping and the preparation of financial statements.

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And finance is how to manage the accounts within these financial statements.

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And we covered last session the first financial statement, which is the income statement.

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Today we will talk about the balance sheet.

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So let's just remind ourselves of what is the business objective that we covered last session.

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We said any business will have an objective of making profits so the business will try to make or produce

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a good or service, sell it and make some profits.

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Something really important for businesses to have is what we call assets.

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So these businesses will need resources in order to be able to make the products or services.

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So if we think together of a pizza restaurant, what they try to provide pizzas now?

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Can they provide pizzas without even without the mixer to do the dough, without having a shop, without

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having a van to deliver these pizzas?

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The answer is no.

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So all of these resources that the business need to own, all of these objects, the business owners

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are called assets on the balance sheet.

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We try to look at these assets and how they were financed.

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So a balance sheet is just a report that is prepared by the company to show what of the assets the company

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owned and how these assets are financed.

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So are they financed through liabilities or equity?

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And this is what we will discuss.

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So in the income statement, we were looking at accounts like revenue expenses in the balance sheet.

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We will look at accounts like assets, liabilities and equity.

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The income statement, if you remember, we said it's more like a video where you record all the transactions

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for the period.

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Now the balance sheet, it's more like a picture where you record the the value of these assets at the

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day of repairing the balance sheet.

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So we call it as of that day, what was the value of the assets, the value of the liabilities and equity?

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One important fundamental equation in accounting, it is called the accounting equation, states that

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total assets must equal total liabilities on equity, so assets from one side must equal both liability

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and equity from the other side.

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And this is the name for the balance sheet because there's that's why it's called the balance sheet.

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There is always a balance between assets from one side liabilities and equity from the other side.

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So let's focus more on the assets.

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And we said these are economic resources owned by the business and they have some benefits.

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They must have some benefit in the future to bring to the business.

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Now we have two main types of assets.

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The first one is what we call the noncurrent asset, long term asset, fixed assets, three different

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names for exactly the same thing.

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And the second type is what we call the current assets now in accounting and finance.

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Wherever you see current noncurrent, most of the time the current means something has one year expiry

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or one year's duration and long.

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That means it runs or has a date that is more than one year.

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When we talk about assets, the long term assets of those assets that the business can use for more

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than one year.

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So a noncurrent assets are resources, items, objects the business and can benefit from for longer

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than.

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And you have this list of examples now, the current assets, all of the resources that the business

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will benefit from in the short term, which is something less than a year or so of the date of repairing

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your balance sheet, you will look at each of these accounts and think from this date of preparing the

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balance sheet, is this account going to last?

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Am I going to benefit from this account for more than the upcoming year?

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Or this account will be utilized, consumed within the year.

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And based on that, you classify that account, whether it is a long term noncurrent or on assets,

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obviously cash, accounts receivable and inventory of the most popular types of accounts under the current

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assets, cash.

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We know what cash is.

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Accounts receivable is how much money your customers or you.

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So you know, you some businesses will sell on credit, not on cash.

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So these customers where we sold our services or product to on credit, the total value of the money

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owed by the customers to us at the date of preparing the balance sheet will appear on the account receivables

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and inventory is just the value of the stocks we have in our warehouse of the day of preparing the balance

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sheet.

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So these are the main types now.

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Liabilities on the other side is the obligations.

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These are amounts owed by the business.

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So these are obligations that the business has to pay to other parties.

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Again, the same logic we have current liabilities, noncurrent liabilities, current liabilities of

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those liabilities that will due within the next 12 months off the date of preparing good balance sheet.

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And these are just examples, payables.

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That's anything that is an expense you should have paid for, but you did not.

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So if you receive the, let's say, electricity bill for your business for the month of January, four

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hundred pound and for one reason or another, you did not pay it.

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Now, in February, if you prepare a balance sheet, you need to recognize this hundred pound as a payable

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to the electricity company.

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So this is an obligation.

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You have to pay it, but you still did not pay that overdraft is a facility from the bank.

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I think it's is tax liability is again, tax amounts.

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You have to pay to the authority, local authority.

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But you still did not pay it.

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Tried payables is the amount that you owed to your suppliers.

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So some businesses are able to buy stocks and raw materials on credit from their suppliers.

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So the total amount of the money owed by you as a business to these suppliers will come under trade

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payables.

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Now, long term or noncurrent liabilities, any liability that will due after the year.

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So this will include long term loans and not payables, mainly bonds.

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So equity, the third type of accounts and the balance sheet is any money or goods invested by the owners

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in the business.

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So any investment from the owner will come under equity and sometimes we call it the capital.

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So if we go back to Jack drinks from last session and if we know this information about Jack at thirty

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first of January, so we know that Jack bought two fridges, for example, we know Jack keeps five hundred

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cans and stock and all these details.

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We can move on to prepare a balance sheet for Jack.

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So the structure of the balance sheet again, you'll start with the name of the business, then the

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name of the statement.

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So in this case, it's a balance sheet.

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And you mentioned the date as of.

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So remember, the income statement was income statement for the period.

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So for a month now, this is as of.

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So as of Thursday, the 1st of January, this is the value of the assets of jack drinks and the value

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of the liabilities and equity as well.

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Remember, total assets must equal the total liabilities on equity and thus why we call it a balance

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sheet.

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So.

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I really hope that you did enjoy this session next session.

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We will talk about the cash flow statement, so I will see you then.

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Thank you very much.

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Goodbye.