1. Accounting Bellwork 3 rd Hour: A Matter of Ethics p213.

2. Section 3The Balance Sheet What You’ll Learn  The purpose of a balance sheet.  How to prepare a balance sheet.  How to analyze information on financial reports. What You’ll Learn  The purpose of a balance sheet.  How to prepare a balance sheet.  How to analyze information on financial reports.

3. Why It’s Important The balance sheet reports the financial position of a business at a specific point in time. Why It’s Important The balance sheet reports the financial position of a business at a specific point in time. Section 3The Balance Sheet (con’t.) Key Terms  balance sheet  report form  ratio analysis  profitability ratio  return on sales Key Terms  balance sheet  report form  ratio analysis  profitability ratio  return on sales  liquidity ratio  current ratio  current assets  current liabilities  quick ratio  liquidity ratio  current ratio  current assets  current liabilities  quick ratio

4. The Balance Sheet The balance sheet is a report of the balances in all asset, liability, and owner’s equity accounts at the end of the period. Balancing the ALOE The Balance Sheet The balance sheet is a report of the balances in all asset, liability, and owner’s equity accounts at the end of the period. Balancing the ALOE Section 3The Balance Sheet (con’t.)

5. The Balance Sheet (con’t.) The balance sheet represents the basic accounting equation; thus, the assets section total must equal the total of the liabilities and owner’s equity sections. It is prepared in report form The Balance Sheet (con’t.) The balance sheet represents the basic accounting equation; thus, the assets section total must equal the total of the liabilities and owner’s equity sections. It is prepared in report form Section 3The Balance Sheet (con’t.) Assets = Liabilities + Owner’s Equity

6. The Balance Sheet (con’t.) Section 3The Balance Sheet (con’t.) Point in time Make sure and get this total from the Statement of Changes In Owners Equity Ending Capital Total

7. Ratio Analysis Section 3The Balance Sheet (con’t.)  Ratio analysis involves the comparison of two amounts on a financial statement and the evaluation of the relationship between these amounts.  Used to determine the financial strength, activity, or debt- paying ability of a business.  Ratio analysis involves the comparison of two amounts on a financial statement and the evaluation of the relationship between these amounts.  Used to determine the financial strength, activity, or debt- paying ability of a business.

8. Ratio Analysis con’t. Section 3The Balance Sheet (con’t.)  Profitability ratios are used to evaluate the earnings performance of the business during the accounting period.

9. Return on Sales Section 3The Balance Sheet (con’t.)  Determine the portion of each sales dollar that represents profit. Net Income$1,150 net income Sales$2,650 sales Net Income$1,150 net income Sales$2,650 sales ==.434 or 43.4%  For every dollar of sales you make 43.4 cents of profit.

10. Current Ratio Section 3The Balance Sheet (con’t.)  Relationship between current assets (Accts Rec., Cash in Bank, Merchandise Inventory) and current liabilities {Accts. Payables (Must be paid within the next accounting period.)}. Current Assets$ 37,775 Current Liabilities$11,725 Current Assets$ 37,775 Current Liabilities$11,725 =Current Ratio=3.22 or 3.2:1  This ratio indicates that a business is able to pay its debts, that business has current assets which are 3.2 times its current liabilities.

11. Quick Ratio Section 3The Balance Sheet (con’t.) Cash and Receivables$ 22,575 Current Liabilities$11,725 Cash and Receivables$ 22,575 Current Liabilities$11,725 =Quick Ratio=1.92:1  If a business has a quick ratio of 1:1 or higher, the business has $1 in liquid assets for each $1 of its current liabilities.  In this case, the business has $1.92 in liquid assets per $1 in current liabilities.  If a business has a quick ratio of 1:1 or higher, the business has $1 in liquid assets for each $1 of its current liabilities.  In this case, the business has $1.92 in liquid assets per $1 in current liabilities.  The relationship between short term assets (can be quickly turned to cash) and current liabilities.

12. Demonstration Problems Ch9 Problem 9-5 through 9-7 Missing 9-6 & 9-7

13. Prime Printing Co. Balance Sheet June 30, 200- Assets Cash in Bank Accts. Receivable- Jack Dipolla Accts. Receivable- Susan Hilloway Office Furniture Office Equipment Automobile Total Assets Accts. Payable – Fucini Corp. Accts. Payable – H&L Co. Total Liabilities Wayne Kay, Capital Total Liabilities & O.E. 4029.45 218.41 173.64 2432.17 4106.80 8124.-- 19084.47 1619.43 2704.81 4324.24 14760.23 Owner’s Equity Liabilities 19084.47 Prime Printing Co. Worksheet For the Month ended June 30, 200-

14. Extra Ratio Demo Problems

15. Current Assets Current Liabilities 80,000 + 115,000 + 75,000 =270,000 115,000 2.35= 2.35:1 The business has current assets that are 2.35 times the liabilities.

16. Cash and Receivables Current Liabilities 80,000 + 115,000 =195,000 115,000 1.70= 1.70:1 The business has $1.70 in liquid assets for each $1 in current liabilities.

17. Net Income Net Sales 190,000 1,320,000.1439 =14.39%= = The percentage indicates that for each dollar of sales produced, 14.39 cents in profit.

18. Check Your Understanding p222 Thinking Critically 1 & 2 Problem 9-3 Understanding Accounting Concepts and Procedures p224 Thinking Critically 1 & 2 Problem 9-3 Understanding Accounting Concepts and Procedures p224 Section 1Preparing the Work Sheet (con’t.)