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

2. 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

3. 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”

4. 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

5. 2.1 Financial Position
P. 19
2.1 Questions: #1-6
2.1 Exercises: #1-6

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’

7. 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?

8. 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

9. 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

10. 2.2 The Balance Sheet Preparing the Balance Sheet
Overhead Example, follow along
6 steps outlined on p

11. 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)

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

13. 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)

14. 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

15. 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!

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