The Balance Sheet

This is the formal way to present a business’ financial position. The following is the proper format for a formal Balance Sheet

Example The balance sheet shows the fundamental accounting equation: A – L = OE

Example Assets are listed in order of ‘liquidity’ – the order in which they can be converted into cash! The two final totals, are recorded on the same line with a double underline. Assets are listed in order of ‘liquidity’ – the order in which they can be converted into cash! The two final totals, are recorded on the same line with a double underline.

Accounts Receivable –Customers often buy goods, but are able to pay at a later date. –These customers owe money to the business –These debts are known as Accounts Receivable (sometimes A/R). Eg. Accounts Receivable - G. Ford - H. Wallbanger (Alphabetically!) –Someone who owes money to the business is known as a debtor.

Accounts Payable –A business will often buy goods and services from its suppliers. –It is now in debt to its suppliers. –Debts owed by the business are referred to as Accounts Payable. –A creditor is anyone to whom the business owes money to.

Preparing a Balance Sheet Step 1 –Write the three part heading: The name of the business The type of statement (Balance Sheet) The date of the statement Step 2 –Write ‘Assets’ and ‘Liabilities’ as headings. Make sure to underline them.

Step 3 –Write down the assets of the business. Total the assets. –Write down the liabilities of the business. Total the liabilities. Step 3

Step 4 –Beneath the liabilities, write the heading ‘Owner’s Equity’ –Then write the owner’s name and the word ‘Capital’

Step 5 – Calculate Equity

Chapter 2 – The Balance Sheet l Accounting 1, 7 th Edition 11 The Balance Sheet This tutorial guides you through the basic steps of creating a balance sheet. For more detailed instructions, refer to Section 2.2 of the Accounting 1 textbook.

Chapter 2 – The Balance Sheet l Accounting 1, 7 th Edition 12 The Balance Sheet 1. Write the heading: Who

Chapter 2 – The Balance Sheet l Accounting 1, 7 th Edition 13 The Balance Sheet 1. Write the heading: Who, What

Chapter 2 – The Balance Sheet l Accounting 1, 7 th Edition 14 The Balance Sheet 1. Write the heading: Who, What, When.

Chapter 2 – The Balance Sheet l Accounting 1, 7 th Edition 15 The Balance Sheet 2. Under the Assets subheading, list all assets in order of liquidity.

Chapter 2 – The Balance Sheet l Accounting 1, 7 th Edition 16 The Balance Sheet 3. Under the Liabilities subheading, list all liabilities in the order they are due.

Chapter 2 – The Balance Sheet l Accounting 1, 7 th Edition 17 The Balance Sheet 4. Subheadings with more than one item must be totalled. Total the liabilities with a ruled line above the total.

Chapter 2 – The Balance Sheet l Accounting 1, 7 th Edition 18 The Balance Sheet 5. Under the Owner’s Equity subheading, record the Capital amount.

Chapter 2 – The Balance Sheet l Accounting 1, 7 th Edition 19 The Balance Sheet 6. Calculate total assets and total liabilities and owner’s equity. They should match. Include a ruled line above the totals.

Chapter 2 – The Balance Sheet l Accounting 1, 7 th Edition 20 The Balance Sheet 7. Put two ruled lines below the two totals.

Chapter 2 – The Balance Sheet l Accounting 1, 7 th Edition 21 The Balance Sheet 8. Add dollar signs to the first number in each column, the total assets, and the total liabilities and equity.

Things to remember…. Use columnar paper (like we have been using) –put the amounts in the correct places. –don’t use commas or decimal places. –If figures are to be added, use a single line.(just before the added number!) –If a total is a final total, draw a double lined rule below it. –Be neat & legible!!!!!!!!

In-Class Activity Complete Exercises 1, 2 and 3 on pages 28 and 29 of your textbook. Quiz on Chapters 1 and 2 –Monday September 12, 2016 Assignment 1 – Balance Sheet –Due Tuesday September 13, 2016