•Prepare the Liabilities and Owner’s Equity section of
INTRODUCTION TO THE
the FS
STATEMENT OF FINANCIAL POSITION 1. Classify liability accounts as current and non-
current
•Statement of Financial Position 2. Compute the totals
- Shows a business’s financial condition as of a 3. Copy the ending capital computed from the
given period Statement of Changes in Owner’s Equity to the
- Shows what a business owns and what it owes to owner’s equity section
its creditors and owners 4. Compute the Total Liabilities and Owner’s Equity
- Records a company’s assets, liabilities, and equity and double rule the amount
•Elements: Assets, Liabilities, Equity •Check if the Total Assets is Equal to the Total
Assets = Liabilities + Capital/Equity Liabilities and Owner’s Equity
Equity = Assets - Liabilities 1. Must be qual
•Use: To assess a company’s ability to pay its short- 2. Otherwise, double check the amounts and the
term (liquidity) and long-term debts (solvency) computations
ELEMENTS OF BALANCE SHEET FORMS OF A BALANCE SHEET
•Asset – things a company owns; resources used to •Report Form
generate revenue - Easier to read
•Current Assets – easy to liquidate and are used - Presents assets, liabilities, and equity vertically
within a year - Used to compare two to three years of the
Ex. Cash, Accounts Receivable, Cash business’s performance
Equivalents, Petty Cash Fund, Inventories •Account Form
•Non-Current Assets – difficult to dispose of and can - Follows the accounting equation format
be used for more than a year - Assets are listed on the left; Liabilities and Equity
Ex. Land, Equipment, Building are listed on the right
•Liabilities – obligations or debts of a business to other
entities, individuals, or institutions
•Current Liabilities – due to be paid within the next
12 months
Ex. Accounts Payable, Short-Term Loans,
Interest Payable
•Non-Current Liabilities – debts that will mature
beyond the one-year period
Ex. Long-term loans, mortgages, bonds
•Equity – residual interest after liabilities are deducted
from the assets; net income or net loss from operations
Ex. Owner’s withdrawal
•For partnerships: capital balances of each partner
•For corporations: stocks and retained earnings
STEPS IN PREPARING A BALANCE SHEET
•Prepare the list of balances and the ending capital
1. List of balances will come from the trial balance or
work sheet
2. Ending capital will come from the Statement of
Changes in Owner’s Equity
•Write the headings
1. Name of the business
2. Statement of Financial Position
3. “As of” followed by the Month, Day, Year
•Prepare the Asset section of the FS
1. Classify asset accounts as current and non-current
2. Compute the totals
3. Double-rule the amount for total assets
INTRODUCTION TO THE
the FS
STATEMENT OF FINANCIAL POSITION 1. Classify liability accounts as current and non-
current
•Statement of Financial Position 2. Compute the totals
- Shows a business’s financial condition as of a 3. Copy the ending capital computed from the
given period Statement of Changes in Owner’s Equity to the
- Shows what a business owns and what it owes to owner’s equity section
its creditors and owners 4. Compute the Total Liabilities and Owner’s Equity
- Records a company’s assets, liabilities, and equity and double rule the amount
•Elements: Assets, Liabilities, Equity •Check if the Total Assets is Equal to the Total
Assets = Liabilities + Capital/Equity Liabilities and Owner’s Equity
Equity = Assets - Liabilities 1. Must be qual
•Use: To assess a company’s ability to pay its short- 2. Otherwise, double check the amounts and the
term (liquidity) and long-term debts (solvency) computations
ELEMENTS OF BALANCE SHEET FORMS OF A BALANCE SHEET
•Asset – things a company owns; resources used to •Report Form
generate revenue - Easier to read
•Current Assets – easy to liquidate and are used - Presents assets, liabilities, and equity vertically
within a year - Used to compare two to three years of the
Ex. Cash, Accounts Receivable, Cash business’s performance
Equivalents, Petty Cash Fund, Inventories •Account Form
•Non-Current Assets – difficult to dispose of and can - Follows the accounting equation format
be used for more than a year - Assets are listed on the left; Liabilities and Equity
Ex. Land, Equipment, Building are listed on the right
•Liabilities – obligations or debts of a business to other
entities, individuals, or institutions
•Current Liabilities – due to be paid within the next
12 months
Ex. Accounts Payable, Short-Term Loans,
Interest Payable
•Non-Current Liabilities – debts that will mature
beyond the one-year period
Ex. Long-term loans, mortgages, bonds
•Equity – residual interest after liabilities are deducted
from the assets; net income or net loss from operations
Ex. Owner’s withdrawal
•For partnerships: capital balances of each partner
•For corporations: stocks and retained earnings
STEPS IN PREPARING A BALANCE SHEET
•Prepare the list of balances and the ending capital
1. List of balances will come from the trial balance or
work sheet
2. Ending capital will come from the Statement of
Changes in Owner’s Equity
•Write the headings
1. Name of the business
2. Statement of Financial Position
3. “As of” followed by the Month, Day, Year
•Prepare the Asset section of the FS
1. Classify asset accounts as current and non-current
2. Compute the totals
3. Double-rule the amount for total assets
