2. The Accounting Equation
Assets = Liabilities + Owners Equity
(the Accounting equation must always
balance!!!)
3. Assets
• An Asset is a resource controlled by the entity
from which economic benefits are expected
4. Liabilities
• Liabilities are present obligations of the entity,
the settlement of which is expected to result
in an outflow of economic benefit
5. Owners Equity
• Owners equity is defined as the residual
interest in the assets of the entity after the
deduction of its liabilities. In effect is what is
left over for the owner once a firm has meet
all its liabilities, or the owner’s claim on the
firm’s assets.
6. The Balance Sheets
• The balance sheet is a statement of what a
business owns (assets) and owes (liabilities) at
a specific point in time. It lists the assets that
the business owns, the liabilities owed by the
business, and the value of the owner's equity
(or net worth of the business). The balance
sheet is also known as a statement of financial
position because it shows a summary of the
business’s financial position at a particular
point in time.
7. Asset, Liabilities, Owners Equity Game
• http://www.proprofs.com/flashcards/cardsho
w.php?title=Asset-liability-owners-
equity&quesnum=2
8. The Balance Sheet
• A balance sheet, also known as a "statement
of financial position", reveals a company's
assets, liabilities and owners' equity (net
worth). The balance sheet, together with the
cash flow statement, make up the cornerstone
of any company's financial statements. If you
are a shareholder of a company, it is
important that you understand how the
balance sheet is structured, how to analyse it
and how to read it.
10. Classification on the Balance Sheet
• Current Assets
• Non-Current Assets
• Current Liabilities
• Non-Current Liabilities
11. Current Assets
• In accounting, a current asset is an asset on
the balance sheet which can either be
converted to cash or used to pay current
liabilities within 12 months. Typical current
assets include cash, cash equivalents, short-
term investments, accounts receivable,
inventory.
12. Non- Current Assets
• non-current asset or as property, plant, and
equipment (PP&E), is a term used in
accounting for assets and property which
cannot easily be converted into cash. This can
be compared with current assets such as cash
or bank accounts, which are described as
liquid assets. In most cases, only tangible
assets are referred to as fixed.
13. Current Liabilities
• A company's debts or obligations that are due
within 12 Months. Current liabilities appear
on the company's balance sheet and include
short term debt, accounts payable, accrued
liabilities and other debts.
14. Non Current Liabilities
• Non-current liabilities are those obligations
that will not become due and payable in the
coming year. There are three types of non-
current liabilities, only two of which are listed
on the balance sheet: Non-current Portion of
Long Term Debt (LTD), Subordinated Officer
Loans (Sub-Off).
16. Transactions & Accounting Equation
1. Every Transaction will affect two items on the
balance sheet ( either Asset, Liability or Oe)
2. After recording the changes, the Accounting
equation must still balance.
FOR EXAMPLE
Bill purchases stock on credit for $ 400
Stock (Assets) will go up $400 & Creditor
(Liability) down $ 400
17. Transactions
1. Ralph Contributes $2000 to start the
company
2. Billy buys $ 400 worth of stock
3. Tim buys a van for $ 25000 on credit
4. Shane sells $ 800 worth of stock on credit
5. Adnan takes out a $ 3000 loan
18. Historical Cost & Balance Sheet
• When preparing a balance sheet, assets are
recorded a their original purchase price
(historical cost). Under the historical cost
principle, adjustment to inflate the cost of an
asset is wrong and is kept on the books at the
price brought until the asset is sold.
