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Balance Sheets
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Financial StatementsFinancial Statements
zzProvide information to:Provide information to:
- The owner
- Investors
- Creditors zzThree Common StatementsThree Common Statements
- Trial Balance
- Income Statement (Profit & Loss)
- Balance Sheet
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Financial StatementsFinancial Statements
zz Balance Sheet:Balance Sheet: A statement, as of a particular date, that shows the amount of assets owned by a business as well as the amount of claims (liabilities and owner’s equity) against these assets.
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Financial StatementsFinancial Statements
Tom Brown, Business Owner Tom Brown, Business Owner Balance SheetBalance Sheet September 1, xxxxSeptember 1,xxxx AssetsAssets LiabilitiesLiabilities Cash…...........…$5,425Cash…...........…$5, Owner’s EquityOwner’s Equity Tom Brown, Capital…..$5,000Tom Brown, Capital…..$5, Net Income…………….Net Income……………. 425425 Total Liabilities &Total Liabilities & Total Assets…...$5,425Total Assets…...$5,425^ Owner’s Equity……..$5,425Owner’s Equity……..$5,
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The Balance Sheet includes:Balance Sheet includes:
zz^ Assets:Assets^ Properties (resources) of value owned by a business (cash, supplies, equipment, land).
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The Balance Sheet includes:Balance Sheet includes:
z z (^) LiabilitiesLiabilities: Obligations that come due in the future.
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The Balance Sheet includes:Balance Sheet includes:
zz Owner’s equityOwner’s equity: Rights or financial claims to the assets of a business (in the accounting equation, assets minus liabilities) by the owner.
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The Accounting EquationThe Accounting Equation
Assets = Liabilities + Owner’s EquityAssets = Liabilities + Owner’s Equity
AssetsAssets –– Liabilities = Owner’s EquityLiabilities = Owner’s Equity
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The Accounting EquationThe Accounting Equation
z The equation must be in balance. z If there is an increase to the left side the right side must increase as well. z Or an increase to the left side could cause a decrease in another account on the left side.
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Assets = Liabilities + Owner’s EquityAssets = Liabilities + Owner’s Equity
zz Shift in assetsShift in assets: A shift that occurs when the composition of the assets has changed, but the total of the assets remains the same.
- Example: z Cash is used to purchase inventory. z Both are assets – the composition has changed but the total of assets is still the same.
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Assets = Liabilities + Owner’s Equity + RevenueAssets = Liabilities + Owner’s Equity + Revenue
zz Revenue:Revenue An amount earned by performing services for customers or selling goods to customers; it can be in the form of cash and/or accounts receivable. A subdivision of owner’s equity : as revenue increases, owner’s equity increases.
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Assets = Liabilities + Owner’s EquityAssets = Liabilities + Owner’s Equity -- ExpenseExpense
zz ExpenseExpense: A cost incurred in running a business by consuming goods or services in producing revenue; a subdivision of owner’s equity. When expenses increase, there is a decrease in owner’s equity.
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Cash vs. Accrual
z Cash Accounting -Sometimes called cash basis or cash method accounting, cash accounting records revenue and expense as they are received or paid, and does not included accounts receivable and accounts payable. z Accrual Accounting -Sometimes called accrual basis or accrual method accounting. The method of keeping records so the accounts show expenses incurred and income earned for a given period, although the expenses may not have been paid, or the income received, in the accounting period. They are accounted for as if they have been paid, or the income received. 20
Balance Sheet
- Assets
- Business Equipment $15,
- Less Depreciation (4,500)
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