1. Chapter 2. The Balance Sheet

2. 1. Accounts Payable v. Accounts Receivable

3. A/P and A/R Accounts Receivable (A/R) Money owed by debtors
Debtors: Customers who owe debts
Asset or Liability ?
Accounts Payable (A/P)
Money owed by the business to the creditors
Creditors: Customers to whom the business owes debts
Asset or Liability ?

4. 2. The Important Features of the Balance Sheet

5. The assets appear on the left side of the balance sheet, and the liabilities and the owner’s equity appear on the right side.
A = L + OE

6. The assets are listed in the order of their liquidity.
Liquidity = how quickly / easily an asset can be turned into $CASH$
Order the following by their liquidity:
Bank Balance
Cash
Land

7. The liabilities are listed in the order in which they are normally paid.

8. The financial details are FULLY discosed on a balance sheet.
From Exercise Question #5e, you were given the following information:
Claude owns a summer property valued at $ which he bought entirely with money borrowed from the bank. Since the purchase, he has paid back $ of the loan.
He still owes $
Both the asset value ($65 000) and the liability value ($45 000) are disclosed.

9. The final two totals (‘Total Assets’ and ‘Total Liabilities and Equity’) are recorded on the SAME LINE and are underlined with a double line.

10. 3. Basic Recordkeeping Practices

11. Basic Recordkeeping Rules
Avoid using abbreviations.
Do not right “Co.” for “Company.
Know where each number belongs on a columnar paper.
Place a single line before the total.
Place a double line after the total
Make sure your work is neat and legible. 23 9 4 28

12. 4. Preparing a Balance Sheet

13. Step 1: Write in the statement heading.
The heading must indicate:
The name of the business
The name of the statement
The date of the statement

14. Step 1: Write in the statement heading.

15. Order them by liquidity.
Step 2: Assets
Circle all assets on the List of Assets and Liabilities for Easy Rent-Alls.
Order them by liquidity.
Write in the sub-heading “Assets” at the top of the left-side column.
Underline the sub-heading.
List the assets.

16. Step 2: Assets

17. Underline the sub-heading. List the liabilities.
Step 3: Liabilities
Underline all liabilities on the List of Assets and Liabilities for Easy Rent-Alls.
Order them by urgency.
Write in the sub-heading “Liabilities” at the top of the right-side column.
Underline the sub-heading.
List the liabilities.
Write in “Total Liabilities” and the total.

18. Step 3: Liabilities

19. Write in the sub-heading “Owner’s Equity” below “Total Liabilities.”
Step 4: Owner’s Equity
Write in the sub-heading “Owner’s Equity” below “Total Liabilities.”
Underline the sub-heading.
Write in the owner’s name plu the word “Capital.”
Calculate the equity.
Write in the equity.

20. Step 4: Owner’s Equity

21. Below Assets column, write in “Total Assets” and the total.
Step 5: Totals
Below Assets column, write in “Total Assets” and the total.
Below Liabilities and Equity column, write in “Total Liabilities and Equity” and the total.
Intuitively, they should be the SAME.
A = L + OE

22. Step 4: Owner’s Equity

23. Step 6: The Final Touch
Place $ (dollar sign) for the first and the last numbers of each column.
Review the balance sheet for accuracy and compliance with recordkeeping rules (lines, numbers, etc.)

24. 5. Review Questions and Exercisesp