Back to basics : the balance sheet explained

Tips from John O'Brien, chair of the Community Accounting Network

If you run an organisation, the chances are you will need to understand accounts - and one accounting statement that causes eyes to glaze over is the balance sheet. This snapshot of the financial state of your organisation has several categories.

Fixed assets are the big things that last a long time. Most of them are tangible assets - buildings, vehicles and computers. Because these things last a long time, they drop in value gradually: this is depreciation. The figure for fixed assets is their remaining value at the end of the year.

Current assets are things that can be turned into cash quickly. This includes money you have in the bank, money you are owed by other people (debtors), the petty cash tin and things you've paid for in advance (also known as prepayments).

Then there's the bad stuff such as liabilities: what you owe other people.

The next figure is important: net current assets are your current assets less your current liabilities. If this is negative, you're in trouble.

All these things added together make your total assets. You might call this the bottom line, but don't just look at this and think all is well. You need to split the funds that are unrestricted from those that are subject to a restriction. For example, you can't use the lottery money for the music project to pay the redundancy costs of the sports project staff. As always, if in doubt, ask questions.

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