Abalance sheet is based on a simple idea — that it is helpful to take stock once a year and ask: ‘What are our assets and liabilities?’ and therefore, ‘Are we financially strong enough to keep going for at least another year?’
Unfortunately, published plc accounts make it hard to answer these questions because they are bogged down in terminology. And the way the accounts are set out make it hard to make simple calculations. The 2005 Accounting Standards set out a particular way of showing the structure of a balance sheet, but Figure 1 gives you a broad outline of what a balance sheet shows, that is total assets – total liabilities = net assets (which must equal total equity).
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