Financial Statements
Senior 6 · Entrepreneurship
Financial Statements
Lesson 3 of 4
25 min
The SACCO's loan officer reads Uwase's income statement and nods: a net profit of Frw 5,800,000 is encouraging. Then he asks a harder question: "If sales fell next year, what does the business own that could pay its debts, and what does it already owe?" Profit tells him how well the business did over the year. For his question he needs a picture of the business on one day: the balance sheet.
The balance sheet lists what the business owns (assets) and who has a claim on them: outsiders (liabilities) and the owner (capital). It must balance, because every franc of assets was provided either by the owner or by someone the business owes.
Definition
Non-current assets and current assets: non-current (fixed) assets are kept to use in the business for more than a year, not for resale, such as land, buildings, vehicles, machinery, furniture and fittings. Current assets are cash, or will turn into cash or be used up within a year, such as stock, debtors, prepaid expenses, accrued income, cash at bank and cash in hand.
Example: Uwase's delivery van is a non-current asset; the fertiliser on her shelves is a current asset.
Definition
Non-current and current liabilities: non-current (long-term) liabilities are due for payment after more than a year, such as a bank loan or a mortgage. Current liabilities are due within a year, such as creditors, a bank overdraft, accrued expenses and income received in advance.
Example: Uwase's bank loan, repayable in 2030, is non-current; the Frw 1,640,000 she owes her suppliers is current.
| Order | Assets are listed | Claims are listed | Used by |
|---|---|---|---|
| Order of permanence | Most permanent first: land, buildings, vehicles, furniture, then stock, debtors, bank, cash | Capital, then non-current liabilities, then current liabilities | Most sole traders and exam answers; the format in this lesson |
| Order of liquidity | Most easily turned into cash first: cash, bank, debtors, stock, then furniture, vehicles, buildings, land | Current liabilities, then non-current liabilities, then capital | Banks, and businesses that want to show how quickly debts can be paid |
Both orders give the same totals. The vertical format lists everything in one column: assets first, then capital and liabilities.
Definition
Accrued income and income received in advance: accrued income has been earned this year but not yet received, such as commission owed to the business; it is a current asset. Income received in advance (prepaid income) has been received this year but belongs to next year, such as rent paid early by a tenant; it is a current liability, because the business still owes the service.
Example: a printer who sublets a room receives January's rent on 20 December: that rent is a liability on 31 December.
Tip
Ask two questions about every balance. Is it something we OWN or something we OWE? Will it be settled within a year? The answers place every item: asset or liability, current or non-current. Capital is the only claim that belongs to the owner.
Worked example 1: Uwase's balance sheet
Use the trial balance and adjustments from Lesson 2 (closing stock Frw 2,150,000; rent prepaid Frw 100,000; electricity owing Frw 30,000; goods taken by the owner Frw 120,000) and the net profit of Frw 5,800,000 to prepare Uwase's balance sheet as at 30 June 2026, in order of permanence.
| Uwase Agro-Inputs: balance sheet as at 30 June 2026 | ||
|---|---|---|
| Frw | Frw | |
| Assets | ||
| Non-current assets | ||
| Delivery van | 6,000,000 | |
| Furniture and fittings | 1,400,000 | 7,400,000 |
| Current assets | ||
| Stock (closing) | 2,150,000 | |
| Debtors | 1,150,000 | |
| Prepaid rent | 100,000 | |
| Cash at bank | 2,310,000 | |
| Cash in hand | 145,000 | 5,855,000 |
| Total assets | 13,255,000 | |
| Capital and liabilities | ||
| Capital (1 July 2025) | 3,705,000 | |
| Add: Net profit | 5,800,000 | |
| 9,505,000 | ||
| Less: Drawings (1,800,000 + 120,000) | (1,920,000) | 7,585,000 |
| Non-current liabilities | ||
| Bank loan (repayable 2030) | 4,000,000 | |
| Current liabilities | ||
| Creditors | 1,640,000 | |
| Accrued electricity | 30,000 | 1,670,000 |
| Total capital and liabilities | 13,255,000 | |
Checks. Current assets: . Total assets: . Capital and liabilities: . The balance sheet balances.
Notice where the year-end adjustments went: closing stock and prepaid rent are current assets, accrued electricity is a current liability, and the goods taken by Uwase are added to her drawings.
Worked example 2: order of liquidity, with accrued income and an overdraft
Kalisa runs a printing business in Rusizi. At 31 December 2025 his balances (Frw) are: printing machine 4,800,000; furniture 700,000; stock of paper and ink 620,000; debtors 480,000; commission receivable 60,000; cash in hand 90,000; bank overdraft 350,000; creditors 410,000; rent received in advance from a tenant 150,000; SACCO loan repayable over 3 years 1,500,000; capital at 1 January 2025 3,520,000; net profit 1,720,000; drawings 900,000. (Illustrative.) Prepare his balance sheet in order of liquidity.
| Kalisa Printing Services: balance sheet as at 31 December 2025 (order of liquidity) | ||
|---|---|---|
| Frw | Frw | |
| Assets | ||
| Current assets | ||
| Cash in hand | 90,000 | |
| Commission receivable (accrued income) | 60,000 | |
| Debtors | 480,000 | |
| Stock of paper and ink | 620,000 | 1,250,000 |
| Non-current assets | ||
| Furniture | 700,000 | |
| Printing machine | 4,800,000 | 5,500,000 |
| Total assets | 6,750,000 | |
| Liabilities and capital | ||
| Current liabilities | ||
| Bank overdraft | 350,000 | |
| Creditors | 410,000 | |
| Rent received in advance (prepaid income) | 150,000 | 910,000 |
| Non-current liabilities | ||
| SACCO loan (3 years) | 1,500,000 | |
| Capital (1 January 2025) | 3,520,000 | |
| Add: Net profit | 1,720,000 | |
| Less: Drawings | (900,000) | 4,340,000 |
| Total liabilities and capital | 6,750,000 | |
Reasoning. The overdraft is money owed to the bank, so it is a current liability, not a negative asset. The commission receivable has been earned, so it is a current asset. The rent received in advance is owed back as a service, so it is a current liability. Capital: . Totals: .
Warning
If your balance sheet does not balance, look here first. Drawings ADDED to capital instead of subtracted; net profit listed as a liability; a bank overdraft shown as an asset; a prepaid expense shown as a liability or an accrued expense as an asset; closing stock left out. Each of these misplaces an amount, and many of them move it to the wrong side, which doubles the difference.
Accounting Stuff, "The Balance Sheet for Beginners (Full Example)" (about 7 minutes). Watch how assets are split into current and non-current and why the two halves must be equal. The video says "equity" for capital and uses dollars.
Practice
Sources and credits
Written by Ganzaa: Uwase's and Kalisa's balance sheets, the diagram, the tables, the worked examples and the practice items. The businesses, names and figures are illustrative (2026).
