1. Chapter 2:
The Balance Sheet 1

2. The Balance Sheet
Financial Position 2

3. Financial Position
One of the most important uses of accounting data is to show the Financial Position of a person, a business or an organization
What do you think would go into the determination of Financial Position? 3

4. Financial Position Things you own Things you owe … your debts
These are called ASSETS
Things you owe … your debts
These are called LIABILITIES
Calculate the difference between total ASSETS and total LIABILITIES
This difference is called CAPITAL or the OWNER’S EQUITY or NET WORTH 4

5. Financial Position Things you own … Things you owe …
___________________ $_________
___________________ _________
Total Assets $
Things you owe …
___________________ $_________
___________________ _________
Total Liabilities $
Capital, Equity or Net Worth …
= Total Assets – Total Liabilities
= $______________ – $______________
= $ 5

6. Fundamental Accounting Equation
It may be stated as …
A – L = OE
(Assets – Liabilities = Owners’ Equity)
Or the more traditional way is …
A = L + OE
(Assets = Liabilities + Owner’s Equity) 6

7. The Balance Sheet
Features 10

8. The Balance Sheet $ 11

9. Fundamental Accounting Equation$
A =
L + OE 12

10. Assets
Liquidity – the order in which the assets are converted into cash $
Listed in
order of
liquidity 13

11. Assets Accounts Receivable
List of customers who purchased goods or services but will pay at a later date. $ 14

12. Assets Accounts Receivable
List of customers who purchased goods or services but will pay at a later date.
They are in debt to the business. $ 15

13. Assets Accounts Receivable
List of customers who purchased goods or services but will pay at a later date.
They are in debt to the business.
Anyone who owes money to the business is a debtor. $ 16

14. Assets
Accounts Receivable
Abbreviated as A/R. $ 17

15. Assets Accounts Receivable Abbreviated as A/R.
Names of customers are listed in alphabetical order by last name. $ 18

16. Assets Accounts Receivable Abbreviated as A/R.
Names of customers are listed in alphabetical order by last name.
Listed after cash … as A/R are usually collected within 30 days $ 19

17. Assets
Supplies and long-term assets are listed last as they are not typically converted to cash but are used in the operation of the business.
The order shown here is what you will see in the text book.
The proper order is to list them in the order they will get … “used up”. $ 20

18. Liabilities
Listed
in order
of when
they are
normally
paid $ 21

19. Liabilities Accounts Payable
List of suppliers who the company purchased goods or services from but will pay at a later date. $ 22

20. Liabilities Accounts Payable
List of suppliers who the company purchased goods or services from but will pay at a later date.
They are amounts owed to creditors. $ 23

21. Liabilities Accounts Payable
List of suppliers who the company purchased goods or services from but will pay at a later date.
They are amounts owed to creditors.
A creditor is anyone to whom the business owes money. $ 24

22. Liabilities
Accounts Payable
Abbreviated as A/P. $ 25

23. Liabilities Accounts Payable Abbreviated as A/P.
Individual creditors are listed alphabetically. $ 26

24. Liabilities Accounts Payable Abbreviated as A/P.
Individual creditors are listed alphabetically.
Listed first in the list of liabilities as they are typically paid within 30 days. $ 27

25. Owner’s Equity
Listed separately from liabilities. $ 28

26. Owner’s Equity Listed separately from liabilities.
Show the owner’s name plus the word “Capital”. $ 29

27. Owner’s Equity Listed separately from liabilities.
Show the owner’s name plus the word “Capital”.
This figure is the difference between total assets & total liabilities. $ 30

28. Formatting Conventions
The Balance Sheet
Formatting Conventions 31

29. Formatting
Title … who, what, & when. $ 32

30. the financial position
The Title
WHO
The name of the
individual, business,
or organization $
WHAT
The name of the
Financial Statement
WHEN
The date on which
the financial position
is determined 33

31. Formatting Sub-headings …
Write and underline sub-headings for Assets, Liabilities, & Owner’s Equity. $ 34

32. Formatting
Single ruled line before all sub-totals & totals. $ 35

33. Formatting Double ruled line after all totals. Totals on the same line$
Totals on the same line 36

34. Formatting
Dollar signs ($) are placed with the first amount in every column
A dollar sign ($) is also used beneath each single-ruled line $ 37

35. Formatting Use columnar paper to keep figures aligned.$
Notice the columns ...
thousands – hundreds – tens – single dollars - cents
Use columnar paper to keep figures aligned.
Even dollar amounts may be shown as “00” or “–” in the cents column.
Notice, decimals and commas are not used. 38

36. Claims Against The Assets
The Balance Sheet
Claims Against The Assets 42

37. Claims against the Assets$
Claims of the Creditors
Claims of the Owner 43

38. Claims against the Assets
Why do creditors and owners have a claim on assets?
They have either provided the funds used to acquire the assets or
They have provided the assets themselves 44

39. Claims against the Assets
Who has first claim to the assets?
If the business is closed down, the claims of the creditors are settled first
The owner must accept any losses from the sale of the assets but may also benefit from any profits 45

40. The Balance Sheet
Accounting Standards 48

41. The Accounting Standards Board (AcSB) consults with other organizations such as the International Accounting Standards Board (IASB) to make decisions about accounting standards.
In 2006 they decided that GAAPs (Generally Accepted Accounting Principles) would be changed to International Financial Reporting Standards (IFRS)
Since 2011, private businesses (businesses not listed on stock exchanges) may choose IFRS or ASPE (Accounting Standards for Private Enterprises) to govern heir accounting practices.
All businesses must diligently follow an accounting standard practice.

42. Business Entity Concept
The business entity concept provides that the accounting for a business organization must be kept separate from the personal affairs of its owner, or from any other business or organization.
What does this mean?
The owner of the business should not place any personal assets, such as the family home, on the business balance sheet.
The balance sheet must reflect the financial position of the business alone.
Any personal spending of the owner are charged to the owner. 51

43. Continuing Concern Concept
The continuing concern concept assumes that a business will continue to operate and use up its assets.
What does this mean?
It is assumed that the business will continue to operate for an indefinite period of time. Consequently, the assets of the company will continue to be used for their intended purpose and would be valued at their original cost 52

44. The Cost Principle
The cost principle requires accountants to record the value of assets at their purchased, historical price.
What does this mean?
We are not concerned about the market cost of the items on the balance sheet because we know their original cost.
This relates to the continuing concern concept because we do not need to know the market value, as the business will continue to operate and use up its assets (i.e. supplies). 52

45. Which assets might this apply to most?
The Revaluation Model
The revaluation model is an IFRS standard that allows accountants to change the value of particular assets based on market conditions.
Which assets might this apply to most? 53

46. Classified Balance Sheet
Current Liabilities
Current Assets
Long-term Liabilities
Long-term Assets
Equity

47. Classified Balance Sheet
Current Assets - Assets that will be converted to cash or used up in one year.
Long-Term Assets - Assets that last longer than one year.
Current Liabilities - Due within one year.
Long-Term Liabilities - Take more than one year to pay off.

48. Balance Sheet Statement of Financial Position (IFRS)
Equity
Long-term Assets
Long-term Liabilities
Current Assets
Current Liabilities