Chapter 2 – The Balance Sheet BAF3M Accounting Chapter 2 – The Balance Sheet

2.1 Financial Position Basic concept to the whole accounting system To determine your financial position 1 – list dollar values of things you own 2 – list dollar values of things you owe 3 – calculate the difference

2.1 Financial Position Proper Terminology 1 –things you own ASSETS 2 –things you owe LIABILITIES 3 –the difference OWNER’S EQUITY* * other names for OE include “NET WORTH”, “CAPITAL”, or just “EQUITY”

2.1 Financial Position Fundamental Accounting Equation Pg.19 – this relationship is the key to the entire accounting system Assets = Liabilities + Owner’s Equity A = L + OE

2.1 Financial Position P. 19 2.1 Questions: #1-6 2.1 Exercises: #1-6

2.2 The Balance Sheet Formal document which shows financial position of a person, business or other organization Examples p. 21 Fig 2.1 ‘personal’ AND Fig 2.2 ‘small business’

2.2 The Balance Sheet Set up the form of the fundamental accounting equation: A = L + OE Assets always on LEFT Liabilities and Owner’s Equity on RIGHT Heading is WHO? WHAT? WHEN?

2.2 The Balance Sheet Assets are listed in order of LIQUIDITY (closest to cash) Liabilities listed in order they are paid off Final totals get a double underline

2.2 The Balance Sheet Accounts Receivable & Accounts Payable A.k.a. : “A/R” and “A/P” A/R is when someone buys from you, but has not paid you yet, so its an ASSET A debtor is someone who owes you money A/P is when you bought something, but have not paid it yet, so it’s a LIABILITY A creditor is someone you owe money to

2.2 The Balance Sheet Preparing the Balance Sheet Overhead Example, follow along 6 steps outlined on p. 23-25

2.2 The Balance Sheet Basic Recordkeeping Practices Let’s keep these in mind as we proceed through this course Use of Columnar Paper Use of Ruled Lines Neatness (these will all become ‘second nature’ as you progress)

2.2 The Balance Sheet p.28 2.2 Q’s: 3, 4, 6, 9, 11, 12 p. 28 2.2 Ex’s: 1, 2

2.3 Claims Against the Assets Both creditors and owners have claims to the assets listed on the balance sheet Why? Because creditors have usually provided the funds to the business to purchase the assets Upon liquidation of assets, creditors are paid first Leftover amounts go to the owner (capital)

2.4 Accounting Standards p. 33 Accountants have specific standards, rules and guidelines they must follow in order to ensure that their work properly done Used to be GAAP – Canada now switched over to IFRS and ASPE IFRS  International Financial Reporting Standards ASPE  Accounting Standards for Private Entreprises

2.4 Accounting Standards ASPE – mostly for private companies IFRS – mostly for public companies Some basic accounting standards will be pointed out through the course, but a specific knowledge of all standards is not required in this course. More on these as we need them!

Chapter 2 Review Pg. 47 Review Q’s: 1 - 6