1. The Balance Sheet “a statement of financial position”
Assets
Liabilities
Debts owed
Things owned = +
Owner’s Equity
the owners share of the assets

2. The Accounting Equation
Assets = Liabilities + Owner’s Equity
A = L + OE

3. Balance Sheet Statement of Financial Position
A “freeze frame” or snapshot of what the business owns, owes and the owners invested interest.
A = L + OE
A financial picture of the business at a point in time.

4. The Balance Sheet
An indicator of
“Financial Strength”

5. Cash and Liquidity
Cash is arguably the MOST valuable asset of a business.
WHY??
It can easily be exchanged for other assets
An asset is “Liquid” if it is
easily exchanged for other assets, or
easily turned into CASH.

6. Assets - OWNERSHIP
Ownership (title- legal right to use) is separate from financing (source of funds used to purchase asset).
With ASSETS, an owner can:
Use
Sell
Give away
Leave to heirs
Whether bought for cash or on credit, the owner still has “title” to his/her property

7. Classification of Assets
Current Assets
Things owned that will be consumed or turned into cash in < 1 year.
E.g..
Cash – used daily in the business to purchase goods and services
Accounts Receivable – money owed to a business for product sold or service rendered – collected regularly
Inventory – merchandise or raw materials – sold or used to make product, daily
Supplies – used regularly in the business (daily, weekly, monthly)

8. Current Assets – presentation
ORDER Of
LIQUIDITY
Current Assets
Cash $ 50,000
CLOSEST TO
CASH
Accounts Receivable ,000
Inventory ,000
Supplies ,000
FARTHEST FROM
CASH
Total Current Assets $215,000

9. Classification of Liabilities
Current Liabilities
Things owed that will be paid (and use up cash) in < 1 year.
E.g..
Wages Payable – paid weekly, bi-weekly or monthly by the business to purchase labour
Accounts Payable – debts resulting from goods and services purchased on credit– paid regularly
Other Liabilities – Estimates of other debts likely to be paid by the business within one year – (often no invoice received)
Current Portion – Long Term Liability – Part of Long Term Debt, such as a mortgage due for payment in the next year.

10. Current Liabilities – presentation
ORDER Of
MATURITY*
Current Liabilities
Wages Payable $ 10,000
FIRST
TO BE
PAID
Accounts Payable ,000
Other Liabilities ,000
Current Portion - Mortgage 15,000
LAST
TO BE
PAID
Total Current Liabilities $155,000
* Maturity – When a debt is “mature” it’s payment is due

11. Classification of Capital Assets (also called Fixed or Long Term Assets)
Fixed Assets: things owned that have a useful life of > 1 year.
E.g..
Land or Property – unlimited life
Building – Physical structure and related fixtures (attached)
Useful life varies 30 + years
Equipment – machinery used to manufacture a product or produce a service – can also include computer and other technological equipment (3 to 50 year life)
Furnishings – Office desks and other necessary furniture (usually < 5 year life)
Vehicles – delivery, utility and sales related – 3to5 year life

12. Fixed Assets – presentation
REVERSE ORDER Of
LIQUIDITY*
Land $ ,000
MOST DIFICULT TO CONVERT TO $
Building 1,100,000
Equipment ,000
Furniture ,000
Vehicles ,000
EASIEST TO CONVERT TO $
Total Fixed Assets $ 2,690,000
Liquidity – The ability to convert an asset to cash.
(? – Is it saleable ?)

13. Classification of Long Term Liabilities
Long term Liabilities: things owed that have a repayment term of > 1 year.
E.g..
Mortgages on Land (Property) and Building – Represents funds loaned by a Bank, Financial Institution or Private Business or Individual to the business
Repayment terms vary from 5 to 30 + years
Long Term Loans other than Mortgages – secured by personal guarantees or other means but not by the assets bought with the loaned money
Creditor types and terms similar to Mortgages

14. Long Term Liabilities – presentation
ORDER Of
MATURITY*
Vehicle Loans $ 150,000
Equipment Loan $ 900,000
SHORTEST TERM
Mortgage ,000
Total Long Term
Liabilities $ 1,900,000
LONGEST TERM
* Maturity – When a debt is “mature” it’s payment is due

15. Classification of Owners Equity
Owner’s investment in the business, or the financial portion of the business that belongs to the owner.
Details:
Represents owner’s net investment in the business
Made up of:
The owner’s investment(s) of cash into the business
Add the owner’s share of net income of the business
Subtract the withdrawals of cash made by the owner

16. Owner’s Equity – presentation
ORDER SHOWN
Owner’s Equity
CAPITAL +/(-)
INCOME/
(LOSS)
THEN
SUBTOTAL
Owner’s Capital $ 750,000
Plus: Net Income ,000
900,000
Less: Drawings ( 50,000)
SUBTRACT
DRAWINGS
AND
THEN
TOTAL
Total Owner’s Equity $ 850,000

17. Owner’s Equity – alternate presentation
ALPHABETIC ORDER
B. Adams,Capital $ 100,000 A
G. Duhany, Capital ,000
C. Mohan, Capital ,000
Total Owner’s Equity $ 210,000 Z

18. LIABILITIES & OWNERS EQUITY
Example Company
Balance Sheet
Month, day, Year
ASSETS
LIABILITIES & OWNERS EQUITY
Liabilities
Current Assets
Current Liabilities
Cash $ 50,000
Wages Payable $ 10,000
Accounts Receivable ,000
Accounts Payable ,000
Inventory ,000
Other Liabilities ,000
Supplies ,000
Current Portion - Mortgage 15,000
Total Current Liabilities $ 155,000
Total Current Assets $215,000
Long Term Liabilities
Fixed Assets
Vehicle Loans $ 150,000
Equipment Loan ,000
Land $ 200,000
Mortgage ,000
Furniture ,000
Total Long Term Liabilities 1,900,000
Building 1,100,000
Total Liabilities $ 2,055,000
Owner’s Equity
Equipment ,000
Owner’s Capital $ 750,000
Plus: Net Income , ,000
Vehicles ,000
Total Fixed Assets 2,690,000
Less: Drawings ( 50,000)
Total Owner’s Equity ,000
TOTAL ASSETS $2,905,000
TOTAL LIABILITIES
& OWNERS EQUITY $2,905,000

19. Acme Web Page Designers Balance Sheet As at March 31, 1999
WHO
Acme Web Page Designers Balance Sheet As at March 31, 1999
ASSETS:
Cash
$600.00
Office Equipment
3,400.00
Total Assets:
$4,000.00
=======
LIABILITIES:
Bank Loan
$300.00
Accounts Payable
250.00
Total Liabilities:
550.00
OWNERS EQUITY:
Capital
$800.00
(Plus) Net Income
2,800.00
3,600.00
(Less) Drawings
150.00
Total Owner's Equity:
3,450.00
Total Liabilities & Owner's Equity: $
WHAT
UNDERLINING
WHEN