Task sheet 15 UNDERSTANDING THE BALANCE SHEET

Fill in the blanks

Date 3/1/1989
Gordon Pepper obtains a long term bank loan of £8,000 which he will start to pay back in 3 years time.
He also borrows £2000 from his brother that he must repay in 3 months! All money is put in the bank.
Assets £ Liabilities £ £
Cash in bank Bank loan Current Assets
Family loan Current Liabilities
Total Assets Total Liabilities Working Capital
Asset - something owned by the firm Current Asset - an asset in the form of cash or 'near cash' (eg. Stock)
Liability - money the firm owes to someone else Current Liability - a debt needing to be paid in the near
future. Working Capital - current assets minus current liabilities. Total Assets always equal Total Liabilities.

Date 4/1/1989 He uses £1,000 from the cash in the bank to buy printing equipment.
Assets £ Liabilities £ £
Cash in bank Bank loan Current Assets
Printing equip Family loan Current Liabilities
Total Assets Total Liabilities Working Capital
Current Ratio :1
Current Ratio - current assets divided by current liabilities. This is a measure of how easily the firm can pay
its short term debts. Firms look to have a current ratio of at least 2:1.

Date 5/1/1989 He gets stocks of paper and ink, worth £1,250 which he will pay for in 90 days
Assets £ Liabilities £ £
Cash in bank 9,000 Bank loan Current Assets
Printing equip Family loan Current Liabilities
Stock Creditors Working Capital
Total Assets Total Liabilities Current Ratio :1
Acid Test Ratio :1

Creditor - someone to whom a firm owes money. £9,000 stays in the bank, since the stock is on credit.
Acid Test Ratio - current assets minus stock divided by current liabilities. This is a measure of how easily
the firm can pay its short term debts. Firms look to have an acid test ratio of at least 1:1.

Date 6/1/1989
His first job uses £750 of stock and pays £2,500, which goes into the bank. (Profit = £2,500 - £750)
Assets £ Liabilities £ £
Cash in bank Bank loan Current Assets
Printing equip Family loan Current Liabilities
Stock Creditors Working Capital
Profit Current Ratio :1
Total Assets Total Liabilities Acid Test Ratio :1
Profit is a liability since a firm always owes the profit it makes to its owners
Date 7/1/1989
Gordon pays his brother and his creditors in full from the cash in the bank.
Assets £ Liabilities £ £
Cash in bank Bank loan Current Assets
Printing equip Family loan Current Liabilities
Stock Creditors Working Capital
 Profit
Total Assets Total Liabilities

Date 9/1/1989
Gordon takes £600 from the profit, as wages. He buys £3000 more stock on 90 days credit
He buys a van for £4500 cash
Fixed Assets £ Liabilities £ £
Printing equip Bank loan Current Assets
Van Creditors Current Liabilities
Current Assets Profit Working Capital
Cash
Stock Current Ratio :1
Total Assets Total Liabilities Acid Test Ratio :1
Fixed Asset - An asset (owned by the firm) such as a factory, a vehicle or a machine which are used in the
production process over a long period of time. Fixed assets are not intended to be sold for cash (they are not
liquid or current assets).

Date 10/1/1989
Gordon does a job using £400 of stock. He will be paid £4,000 in 8 weeks time
Fixed Assets £ Current Liabilities £ £
Printing equip Creditors Current Assets
Van Current Liabilities
Current Assets Long term Liabilities Working Capital
Cash Profit
Stock Bank loan Current Ratio :1
Debtors Acid Test Ratio :1
Total Assets Total Liabilities
Debtor - Someone who owes your firm money, such as a customer who has taken goods and will pay later.

Date 12/1/1989
He is paid in full for the above job, and spends £3750 in cash on new printing equipment
He pays off his creditors, but takes another £10000 worth of stock on credit
Fixed Assets £ Current Liabilities £ £
Printing equip Creditors Current Assets
Van Current Liabilities
Current Assets Long term Liabilities Working Capital
Cash Profit
Stock Bank loan Current Ratio :1
Debtors Acid Test Ratio :1
Total Assets Total Liabilities

Date 2/1/1990
Gordon becomes a private limited company and sells £150,000 of shares to his family
He puts the share capital into the bank
Fixed Assets £ Current Liabilities £ £
Printing equip Creditors Current Assets
Van Current Liabilities
Current Assets Long term Liabilities Working Capital
 Cash Profit
Stock Bank loan Current Ratio :1
Debtors Share capital Acid Test Ratio :1
Total Assets Total Liabilities

Date 3/1/1990
Gordon uses cash to buy an office for £80,000. He pays his creditors half of what he owes.
His recent work has made him profits of £4000, £1000 of which he is still owed due to late payment
Of the £3000 paid to him, half has gone into the bank and half is kept at the office
Fixed Assets £ Current Liabilities £ £
Printing equip Creditors Current Assets
Van Current Liabilities
Premises Working Capital
Current Assets Long term Liabilities
Cash at firm Profit Current Ratio :1
Cash at bank Bank loan Acid Test Ratio :1
Stock Share capital
Debtors
Total Assets Total Liabilities

Use the data above to complete the Balance Sheet below (which is in a different format)
Pepper Publishing at 1st March 1990
Fixed Assets £
Capital Equipment This way of presenting the balance
Vehicles sheet has exactly the same
Premises information as the one for Pepper
ltd above.
Total
Current Assets It balances because the net assets of
Cash at firm the firm must belong to to the
Cash at bank owners of the firm - in the form of
Stock retained profit and the funds of
Debtors shareholders.
Total
Deduct You should find that the figures (a)
Current Liabilities from Current Assets and (b) below are equal
Creditors
Net Current Assets

Total Assets less Current Liabilities Total assets = fixed assets + current assets
Bank Loan
Net Assets (a)
Financed by:
Retained Profit
Shareholder Funds
Total (b)