What is the balance sheet?

1. What is the balance sheet?

2. The Balance Sheet The balance sheet is the financial tool that focuses on the present condition of a business.

3. The Balance Sheet • The Balance sheet shows the financial position of a company at a particular point in time.

4. Important features of the Balance Sheet 1. It is set up in the form of the fundamental accounting equation Asset = Liability + owner’s equity Assets on the left side Owner’s equity and liability on right side

5. Important features of the Balance Sheet 2. It has a three line heading • Who? - the name of the individual, business, or other organization. • What? - the name of the financial statement • When? - the date on which the financial position is determined

6. Important features of the Balance Sheet 3. The assets are generally listed in the order of their liquidity. Liquidity means how easily an asset or liability can be converted into cash or get paid off by Cash.

7. Important features of the Balance Sheet 4. The liabilities are listed in the order in which they get paid. 5. The financial details of any item is fully disclosed. 6. The two final totals are recorded on the same line and are underlined with a double line.

8. Account Receivable • The money owed to the business by it’s customers (asset). • Each customer who owes money to the business is called a debtor. • It is recorded in alphabetical order of last name.

9. Account Payable • The money owed by the business to it’s customers, banks or suppliers (liability). • Anyone to whom the business owes money is called a creditor. • It is recorded in alphabetical order of last name.

10. Example Who? What? When?

11. Class Work • P. 24 exercise 2.2: Questions1-4, 11-17