Section 4: Balance sheet

Cycle of finance

Below is a simplified picture of the business cycle. At each stage of the cycle, decisions must be made - by the owners of the business, not by the accountant. These are business decisions about finance, and they will be reflected in the balance sheet.

We start with capital (external and internal financing). Funds are obtained and used to purchase operating assets. Sales are made from these assets, producing operating profits. After interest, tax and dividends, any remaining profits go back into the business and the process starts again.

Below is a list of management decisions. Select the point in the cycle where the decision is made.