7. Interpreting Financial Reports

7.2. Balance Sheet 

Balance Sheet may also be known as Statement of Financial position.  The Balance Sheet shows the organisation’s complete financial position by detailing the organisation’s total Assets, Liabilities and Equity. 

Terms used in the Balance Sheet: 

Assets 

The land, buildings, cars, equipment and cash that the organisation owns. 

Liabilities 

The debts, staff leave entitlements, overdrafts and loans that an organisation owes or is liable to pay in the future.  This includes any future expenses that need to be paid or is owed to the bank. 

Equity 

Any additional funds can be placed in reserve for important expenditure in the following year if funding bodies allow. This could be retained earnings, which means money set aside for future use. 

Total Equity 

The total amount an organisation is worth.  The total equity of an organisation will always balance with the Net Worth. 

Net Worth 

What the organisation is worth.  The amount of money that the members have invested in the organisation.   

If you take away what the organisation owes (liabilities) from what it owns (assets) the result is the net worth. 

 

This report always needs to balance, which is why it is known as a balance sheet. 

Some organisations only look at the Balance sheet on a yearly basis as part of their annual audit report, but it is best to review the Balance sheet more often if possible.  It helps the Board stay informed about the organisation’s overall performance. 

An example of a Balance Sheet:[1]

Joe’s Motorbike

 

 

 

Balance Sheet

 

 

 

As At end of year One

 

 

 

Current Assets

 

 

 

Cash

$5,100

 

 

Debtors

$18,000

 

 

Stock

$3,120

 

 

Total Current Assets

 

$26,220

 

Non-current Assets

 

 

 

Computer

$5,500

 

 

Store Fit Out

$8,100

 

 

Office Equipment

$15,000

 

 

Total Non-current Assets

$28,600

 

Total Assets

 

$54,820

 

Current Liabilities

 

 

Credit Card

$5,500

 

 

Creditors

$4,120

 

 

Total Current Liabilities

$9,620

 

Non-current Liabilities

 

 

Total Non-current Liabilities

 

 

Total Liabilities

$9,620

 

Net Assets

 

$45,200

Shareholders’ Equity

 

 

Owners’ Funds

 

$40,000

 

Current Year Profit

 

$5,200

 

Total Shareholders’ Equity

 

$45,200