Put simply this shows business income and business expenditure.
By comparing one against the other you will see whether the
business made a profit over the year or a loss.
Balance Sheet
This will show the financial position of the business at a
particular moment, usually the end of the accounting year (there is
no rule which says when an accounting year must end so, although
many businesses run their accounts from 6 April to 5 April to
accord with the tax year, they can choose any date they want).
You will usually find that as well as showing the current
year's figures, the balance sheet also shows the figures from the
previous year. This enables you to see where the current opening
figures came from.
Unlike the profit and loss account, the balance sheet
reflects the capital assets of the business. However, the figures
shown, in the vast majority of cases, will be book values and not
open market values. The examination process will necessarily result
in the book values being replaced by open market values.
Goodwill
Whilst this can be a very valuable asset in a business
(except farming and NHS medical practices) it is rarely entered in
the balance sheet itself.
There are many definitions but the SOED defines it as, "The
privilege, granted by the seller of a business to the purchaser, of
trading as his recognised successor; the possession of a ready-
formed connection of customers as a separate element in the
saleable value of a business". This would perhaps be shortened to
saying that goodwill is the worth of the business over and above
its tangible value. It is, therefore, an intangible asset.
Refer the valuation of goodwill to Shares and Assets
Valuation (SAV) (Goodwill).
Capital Account
This is the value of the deceased's interest in the business
representing the difference between the assets and liabilities as
shown in the balance sheet, and is the figure which you will
usually find in the IHT400. It is the starting point only, and any
additions or subtractions due to changes in the value of capital
assets have to be added to or deducted from this figure.
Fixed Assets
These are business assets which are not held for sale -
typically the business premises, plant and machinery etc. The value
shown is usually the "book value", i.e. the cost less depreciation
(assets other than land are usually written off over a number of
years) not an open market one.
Current Assets
Usually included in the balance sheet at cost and can
include
stockCurrent Liabilities
cash and bank balances
the value of work in progress.
Simply current outstanding debts due from the business in the
normal course of trade, e.g. for supplies.
Loan Account
Money lent to the business.
