Balance Sheet items can be more difficult to work with, so we need some guidance. Balance sheet includes the Fixed Assets, Current Assets, Current Liabilities, Long-term Liabilities, and Net Assets or Net Liabilities. Fixed assets are those items owned by a business which it intends and needs to use over quite some time i.e. usually more than one accounting period. Typical fixed assets are property, fixtures and fittings, computers, motor vehicles. Fixed assets are depreciated for accounting purposes but depreciation is not a cash flow and is a common error in cash flows. While, Current Assets are those items within the business that usually contain of stocks, trade debtors and cash in the bank. The cash flow forecast aims to determine the changes in the cash and is thus crucial to working capital management.
On the other side, Current liabilities are those items owed by the business to others on a short term basis. Typically these items will include amounts owed to suppliers, taxes due but not yet paid and bank overdrafts and any other creditors. Again the management of current liabilities is integral to the management of working capital in the business and is a driver of the cash flow forecast. And also there are Long term liabilities. These items include Loans due after 1 year or more, and HP Agreements. The last is Net Assets or net liabilities. It’s the same as the worth of company
If assets exceed liabilities then this is a positive outcome, if liabilities exceed assets then this is an indicator that the business may be in trouble and remedial action needs to be taken quickly.