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Guide to practice accounts: The balance sheet

This is one of the most important statements in the practice accounts, showing how the practice is being funded and how it is using its funds. By Seamus Dawson.


The balance sheet is often described as a snapshot summarising the practice’s assets and liabilities and the partners’ equity – the value of their financial stakes in the practice at midnight on the accounting date.

A typical GP practice balance sheet will show the partners’ equity as being a mirror image of the practice’s net assets  (what is left after deducting liabilities).

Partners’ equity
This is made up of the property capital account (if they own the surgery) and the partners’ current accounts (an accountancy term, not bank accounts) that reflect the partners’ financial interest in the surgery premises and all other assets. The property capital account should be equal to the value of the property on the balance sheet less any practice loans.

Current accounts
The movement in the current accounts from one year to another will reflect the earnings of the partners, less their drawings (advances on profit share) during the year. The amount in each partner’s current account at year-end represents ‘undrawn’ profits.

Working capital
Undrawn profits in each partner’s current account is their investment in the working capital to keep the practice running and will have to be paid out to them on their retirement from the practice.

It is therefore important that individual partners' balances should not be allowed to build up unnecessarily (or fall too low). At the balance sheet date, it is advisable for the partners’ current accounts to reflect their profit-sharing ratios. So if there are four equal partners and the total current account balances are £10,000, each partner should have a balance of £2,500.

Where balances are not in line with the profit-sharing ratios, the partners should take steps to equalise them at the end of the accounting period.

Net assets
The net assets part of the balance sheet is made up of:

  • Fixed assets
  • Current assets
  • Current liabilities
  • Net current assets

Fixed assets
These are long-term investments in physical items, such as surgery premises, fixtures and fittings and computer equipment. Long-term practice loans taken out to fund the purchase of the practice premises and other assets should be deducted from the total fixed assets on the balance sheet.

Current assets
These are short-term investments, such as the practice’s stock of drugs, debtors (money owed to the practice), bank balances and cash in hand.

Current liabilities
This shows short-term creditors (money owed by the practice) and short-term loans owed by the practice.

Net current assets
This gives the difference between current assets and current liabilities. Net assets should exceed net liabilities because this shows the practice is in a position to pay its current debts out of money in the bank and money owed to it.

They represent the working capital of the practice. There is a more detailed explanation of net current assets in part four of this guide.

In accounting terms, the word ‘current’ is used to represent short-term assets and liabilities. Short-term assets are those that can be converted to cash within 12 months. Short-term liabilities are amounts owed by the practice that are to be settled within 12 months.

Debtors and creditors must be shown in the accounts for the year if they relate to that year, so that receipts and payments are allocated to the correct accounting period, even if income is yet to be received and expenditure yet to be paid.

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