Introduction to the Balance Sheet What is Net Worth?

The Accounting Equation The foundation of the balance sheet is included in the following equation Here it is: A = L + OE Also known as Assets = Liabilities + Owners Equity

The Accounting Equation Reviewing that terminology Assets – item of value owned by a business or person Liability – the debts of a business or person Owner’s Equity – the owner’s claim against the assets or value of the business or How much of the assets the business actually owns.

The Accounting Equation = + House Mortgage Down Payment (Asset) (Liability) (Owner’s Equity)

The Balance Sheet Joe’s Diner Balance Sheet December 31, 2011 Assets Cash 4,000 Accounts Receivable 5,000 Inventory 3,000 Furniture 15,000 Equipment 10,000 Automobile 20,000 Total Assets 57,000 Liabilities Credit Card Debt 2,000 Bank Loan 10,000 Total Liabilities 12,000 Personal Equity J. Chari, Capital 45,000 Total Liabilities and Owner’s Equity 57,000

The Heading Headings for all accounting statements are similar, as in they always are listed in the same order Who? Company Name What? Which type of statement When? The date that its representing The Balance Sheet is not any different

Asset Classification Assets are broken up into 2 different categories Short-term or current assets Fixed or long-term assets Current assets are those that the business expects to be used up within 1 years time Fixed assets are those that are expected to last for longer than 1 year

Order of Liabilities Liabilities are also split into 2 categories Current liabilities – less than 1 year Long-term liabilities – more than 1 year Liabilities are listed in “maturity order”, meaning that the liability that is due in the shortest amount of time is listed first and so forth

Owner’s Equity Owner’s Equity is always listed as follows First Initial . Last name, Capital C. Bourne, Capital

Facts to Remember Only the totals should be double- underlined The statement should contain no corrections No abbreviations should be used in a statement A single line indicates addition or subtraction All accounts are to be capitalized Columns and rows need to be aligned for aesthetic reasons

Common Accounts Current Assets – Cash, Accounts Receivable, Office Supplies Fixed Assets – Land, Building, Equipment, Automobile, Truck Current Liabilities – Accounts Payable, Notes Payable Long-term Liabilities – Bank Loan, Mortgage Payable