Chapter 2 Balance Sheet FINANCIAL POSITION Assets are

Chapter 2 ~ Balance Sheet? FINANCIAL POSITION ● Assets are all things that a business owns, which have value. ● Equities are a portion of the assets that a business owner has financial rights to (what the owner actually owns). ● Liabilities are the other portion of the assets that are owned by other companies and banks that have loaned money to the business.

Chapter 2 ~ Balance Sheet Two kinds of equities: ● Equity of persons to whom a business owes money (liabilities). ● Equity of the owner. The value of the owner’s equity is called capital.

Chapter 2 ~ Balance Sheet Assets = Liabilities + Capital (Or Owner’s Equity) Assets - Liabilities = Capital (Or Owner’s Equity)

Chapter 2 ~ Balance Sheet The basic form of business ownership is the sole proprietorship. The owner is personally responsible for all of the liabilities of the business. If the business fails it results in the owner losing personal assets; however, you are your own boss & many sole proprietors do very well because of the owner’s talents & desires.

Chapter 2 ~ Balance Sheet ● To start a new accounting system for a proprietorship the first thing to do is prepare a list of the business’ assets & liabilities. Using the accounting equation the equity (capital) can be calculated. Assets=Liabilities+Capital 5000 = 2000 + ?

Chapter 2 ~ Balance Sheet Both sides of the equation must always balance. Assets=Liabilities+Capital 5000 = 2000 + ?

Chapter 2 ~ Balance Sheet? A Balance Sheet shows the financial position of a person, business or organization. When starting a new accounting system the opening balance sheet is the first thing recorded.

Chapter 2 ~ Balance Sheets are prepared in a particular way: 1. Heading – Who, what & when. The business name, the accounting document & the date it was prepared. Centred on the page. E. G. Bill’s Garage Balance Sheet October 1, 2005

Chapter 2 ~ Balance Sheet 2. Assets – Write the title “ASSETS” underlined, on the left-hand side. Below list assets & values. Assets are listed in order of liquidity (how fast they can be converted into cash).

Chapter 2 ~ Balance Sheet 3. Liabilities – Write the title “LIABILITIES” underlined on the right-hand side. Below list liabilities and values. Rule a single line across the amount column under the last amount. Write “TOTAL LIABILITIES” below the last liability & total the amounts in the amount column. Liabilities are generally listed in the order in which they are due.

Chapter 2 ~ Balance Sheet 4. Capital – Write the title “EQUITY” below the liability section. Write the owner’s name followed by the word Capital on the line below. Calculate the capital by subtracting the total liabilities from the total assets. Enter this amount on the same line as the owner’s name.

Chapter 2 ~ Balance Sheet 5. Rule a single line across both the left & right amount columns under the last amount in the longer column. On the next line write “TOTAL ASSETS” and write in the total assets. Write “TOTAL LIABILITIES & EQUITY” and enter the total liabilities & capital. Double rule under the two totals.

Chapter 2 ~ Balance Sheet ACCOUNTS RECEIVABLE (DEBTORS): Debts of customers. A debtor is someone who owes money to the business. They are assets. ACCOUNTS PAYABLE (CREDITORS): Debts owed by the business. A creditor is anyone to whom the business owes money. They are liabilities.

Chapter 2 ~ Balance Sheet BASIC RECORDKEEPING PRACTICES - Do not abbreviate the names of businesses on their financial statements. - Use a “-“ or “ 00” to show an even dollar amount (no cents) - Use a single line (above a total) to show a column has been totalled. - Use a double line to show a final total. - Your work must be neat and perfectly legible. - Ensure numbers are written in the right boxes when using columnar paper.