accounting basis l 3

ACCOUNTING BASIS

Lecture 3Balance sheet

LEARNING OBJECTIVES

Understanding of Balance Sheet Balance sheet items classification Types and forms of balance sheet

Assets

Liabilities &

Equity

ACCOUNTING EQUATION

LiabilitiesLiabilities EquityEquityAssetsAssets = +

THE ACCOUNTING EQUATION PRESENTS THE RESOURCES OF THE BUSINESS AND THE CLAIMS TO THOSE RESOURCES

4

EconomicResources

Claims toEconomicResources

Assets

Liabilities &

Equity

BALANCE SHEET ITEMS

The purpose of the balance sheet is to report a company’s financial position on a particular date.

• Assets are the economic resources of a business that are expected to be of benefit in the future

• Claims to assets come from– Liabilities

• Economic obligations - debts payable to outsiders, called creditors

– Owners’ equity (capital)• Assets held by the owners of the business

Balance sheet items

Current

assets

Current

assets

ASSETS

Non current assets

Non current assets

Current assets include cash and other assets that are reasonably expected to be converted to cash or consumed within the

coming year, or within the normal operating cycle of the business if that’s longer than 1

year.

Current assets include cash and other assets that are reasonably expected to be converted to cash or consumed within the

coming year, or within the normal operating cycle of the business if that’s longer than 1

year.

The operating cycle

Cash Raw materials

Finished goods

Accounts receivable

Prepaid expensePrepaid expense

CashCash

Investments

Investments

InventoryInventory

Receivabl

e

Receivabl

eCurrent

assets

Current

assets

Long term investmentLong term investment

IntangibleIntangible

Tangible

Tangible

Noncurrent assetsNoncurrent assets

EquipmentEquipment

BuildingBuilding

Land Land

Tangible assets

Tangible assets

FurnitureFurniture

TransportationTransportation

Tangible assets

Tangible assets

Property, Plant and Equipment

Property, Plant and Equipment

FranchisesFranchises

CopyrightsCopyrights

Patent Patent

Intangible assets

Intangible assets

Computersoftware

Computersoftware

GoodwillGoodwill

Short term

liabilities

Short term

liabilities

LIABILITIES

Long term

liabilities

Long term

liabilities

Unearned

revenue

Unearned

revenue

Wages PayableWages Payable

Notes PayableNotes

PayableAccounts Payable

Accounts Payable

Creditors’ claims on

assets

Creditors’ claims on

assets

SHORT TERM LIABILITIES

Tax Payable

Tax Payable

Bank loan

Bank loan

Notes PayableNotes

PayableBond’s PayableBond’s Payable

Creditors’ claims on

assets

Creditors’ claims on

assets

LONG TERM LIABILITIES

Bank loan

Bank loan

Owner’sclaim on

assets

Owner’sclaim on

assets

Owner’s Equity

Owner’s Equity

Retained EarningsRetained Earnings

OWNER’S EQUITY

Types of balance sheetTypes of balance sheet

Beginning balance sheet

Ending balance sheetOperating balance

sheet

Beginning balance sheet

Ending balance sheetOperating balance

sheet

Assets Amount Liabilities & Owner’s equity

Amount

Current assets

Short term liabilities

-

Cash 10000,0 Long term liabilities

-

Total current assets

10000,0 Total liabilities -

Noncurrent assets

- Owner’s Equity 10000,0

Total assets 10000,0 Total liabilities & owner’s equity

10000,0

“Altai” Co.ltd

Beginning balance

2011.03.01

“Altai” Co.ltd

Beginning balance

2011.03.01

Forms of balance sheetForms of balance sheet

Balance sheet in form of account

Balance sheet in form of statement

Balance sheet in form of account

Balance sheet in form of statement

Balance sheet in form of accountBalance sheet in form of account

Assets Liabilities and Owner’s Equity

Current assets Short term Liabilities

Cash 100.0 Tax payable 86.0

Receivable 60.0 Salary payable 340.0

Short term investment - Accounts payable 200.0

Inventory 350.0 Total short term liabilities 626.0

Prepaid expense 120.0 Long term liabilities -

Total current assets 630.0 Total liabilities 626.0

Noncurrent assets Owner’s Equity

Building 5000.0 Owner’s Equity 5500.0

Furniture 1200.0 Retained Earnings 704.0

Total noncurrent assets 6200.0 Total owner’s equity 6204.0

Total assets 6830.0 Total liabilities and owner’s equity

6830.0

Balance sheet in form of statementBalance sheet in form of statement

Balance Items Beginning balance

Ending balance

Assets

Current assets

Cash 100.0

Receivable 60.0

Short term investment -

Inventory 350.0

Prepaid expense 120.0

Total current assets 630.0

Noncurrent assets

Building 5000.0

Furniture 1200.0

Total noncurrent assets 6200.0

Total assets 6830.0

Balance sheet in form of statementBalance sheet in form of statement

Liabilities and Owner’s Equity Beginning balance

Ending balance

Short term Liabilities

Tax payable 86.0

Salary payable 340.0

Accounts payable 200.0

Total short term liabilities 626.0

Long term liabilities -

Total liabilities 626.0

Owner’s Equity

Owner’s Equity 5500.0

Retained Earnings 704.0

Total owner’s equity 6204.0

Total liabilities and owner’s equity 6830.0