Components of a Balance Sheet•The three key sections of a balance sheet are:•Assets•Liabilities•Owner’s equity
•Liabilities•Liabilities are the financial obligations or debts of the business sourced for the business and•include claims that creditors have on the business’s resources such as accounts payable, bank overdrafts, provision for employees’ annual tax liabilities, and loans payable.•Essentially, liabilities are amounts owed by the business to external parties. •Liabilities are categorised as either current or non-current liabilities
•Current liabilities:are expected to be paid within the next 12 months and include •creditors, (accounts payable), inventory purchases, overdraft, short-term loans and credit card debts.•Non-current liabilities:are not expected to be settled within the next 12 months and include mortgages on buildings and equipment, and long term loans.
•Owner’s equity•Owners equity is the residual interest in the assets of a business after liabilities are deducted. •It is the net worth of a business and •equals the difference between assets and liabilities.•Equity represents the amount belonging to the owner once all financial obligations •have been met.
•Equity includes the initial and ongoing capital investments made by the owners, •retained earnings (or accumulated losses), •and reserves. •Capital is any cash or assets the owner has contributed to the business.•Retained earnings are any profits that are reinvested in the business.•