The Balance Sheet

What is it used for?

Finding out how much a person, business, or organization is worth.

This is called FINANCIAL POSITION.

Financial Position

What things do we need to list?

Assets Liabilities

Financial Position (Assets)

Let’s look at the financial situation for Mike. Here is everything he owns.

Cash $54.50

Bank balance 246.00

Canada Savings Bond

2500.00

Bicycle 629.00

Snowboard 650.00

Computer 1900.00

Phone 700.00

Clothes 2700.00

Total Assets $?????

Financial Position (Liabilities)

Here is everything he owes or that costs money.

Owed to Jack $54.50

Owed to father 246.00

Owed to Mr. Wood for a high mark.

3000.00

Phone Bill 84.95

Total Liabilities $?????

The Fundamental Accounting Equation

Assets – Liabilities = Owner’s Equity

More useful than that is:

Assets = Liabilities + Owner’s Equity

Let’s use this on Mike’s situation:

Mike’s Financial Situation

Assets ($?????) – Liabilities ($?????) = Equity ($?????)

Assets ($?????) = Liabilities ($?????) + Equity ($?????)

Quick review

How do we calculate a person’s financial position?

What is an asset? What is a liability? Define equity. What is another term that means the same thing

as equity? What are the two forms of the accounting

equation?

Exercises

Say asset or liability:-Office furniture-Land-Bank Loan-House and lot-Unpaid heating bill-An amount loaned to Ms. Smith-Mortgage payable-Car-Bank deposit

Claude Pineau needs help figuring out what he is worth.

He has $3650 in the bank, his house is worth 492,000, with 162,360 left on the mortgage.

He owns $55,000 worth of furniture. Has a summer house worth 225,000 with

145,000 left on the mortgage. $4200 in unpaid bills Owes his dad $50,000.

The Balance Sheet

Features of the Balance sheet

In OrderOf

liquidity

In OrderOf

Usual payment

Same line, double underlined

Features of the balance sheet

Mortgages are detailed.

$500,000 house

$200,000 paid off

=$300,000 left. These are listed seperately.

Accounts Receivable/Payable

Accounts Receivable: These are debts TO your business, owed by customers.

Why do we list them?

Accounts Payable: Debts OF your business, to suppliers.

Why do we list these?

Companies owed money by OUR business are called creditors. We will come back to this later.

Accounts Receivable/Payable

Finishing up a Balance Sheet

Recordkeeping Practices

Be careful abbreviating. Here is an example of when abbreviations should be used.

You can use BMW, because theygo by that officially.

However, you would have to fully list Fulford PreparatoryCollege.

Canadian Electric Company cannot be abbreviated to Can. at the beginning, or Co. at the end.

“Ltd.” or “Corp.” or “Inc.” stay that way.

Using Columnar Paper

Using Columnar Paper

BE NEAT!!!!!

Review Questions

1. What is a balance sheet? 2. Where does the name of a business appear

in the heading of a balance sheet? 3. What side of the sheet do you find liabilities? 4. How is a car not fully paid for show up on

the balance sheet? 5. What side of the balance sheet do creditors

appear?

Review Questions

6. What does a single line under a column mean?

7. Why do we have to be neat on balance sheets?

8. What are double lines under columns for? 9. When can you use short forms of business

names? 10. What is the most “liquid asset?”

AssetsCash $ 1 636Debtors Mr. Farrell 749 Ms. Lotfallah 225Supplies 1 005Furniture 21 500Delivery equipment 30 000

LiabilitiesCreditors Ms. Smith $ 1 985 Mr. Wood 954Bank Loan 5 000

If this company were a retailing business, there would be a line called “Merchandise inventory.” What do you think this means? What side of the balance sheet would it be on?