Shareholders' Claims

Shareholders' claims are the residual amount (A-L) and will include the original capital brought in by the shareholders, plus reserves (any additional surplus in assets not attributable to liabilities). Reserves will arise when the company makes a profit, but does not pay out (distribute) all of the profit made to shareholders in the form of dividends. Profits retained in the company in this way (profit and loss account reserves) form an important internally generated source of funds to finance the growth of the company. Reserves may also arise by selling shares at more than their face value (share premium), revaluing fixed assets (Revaluation reserve), etc.

The Balance Sheet

The Balance Sheet is simply a report showing the overall financial position of the company (or accounting entity) at a specific point in time. It lists the totals of all company assets, liabilities, and shareholders' claims, which, due to the logic of the accounting equation maintained using double-entry methods, must balance. Referring to the Balance Sheet of Smiths Industries plc at 31 July 1993 (click here) we can see how this logic is reflected in the form and content of this typical published accounting statement. (Note: we are interested in the position of the whole Smiths Industries group of companies so we shall refer to the 'consolidated' accounting statements which are aggregated to incorporate the accounts of all divisions and subsidiary companies)