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Administrative Studies
ADMS 1500
All Professors

Class 3accounting ch 45 the balance sheetBecause of very limited lecture time for this topic we have decided the following 1 There will be no coverage of ratios on the first midterm examination or in lectures prior to the first midterm They will be covered in Class 7 and the second midterm examination 2 We will not be able to cover any examples in connection with Class 3it is therefore particularly important that you work through the problems Balance Sheet evaluation document assets and liabilities between long term and currentIntroduction In Chapter 2 we introduced the four main financial statements the balance sheet the income statement the statement of retained earnings and the cash flow statement In this chapter we shall look at the balance sheet in greater detail The accounting equationassetsliabilitiesowners equity is the fundamental model for recording and reporting transactionsThe balance sheet is laid out in the same way as the accounting equation The assets the lefthand side of the accounting equation are listed and totalled The liabilities and the equities the righthand side of the accounting equation are listed and totalled The two totals are agreed to show that the accounting equation is in balance It is therefore a list showing a point in time what a company owns what it owes and what owners equity remainsThe Accounting Equation AssetsLiabilitiesOwners Equity ASSETS LIABILITIESOWNERSEQUITY Situation 1 buy a truck with a bank loan Situation 2 buy a truck with cash available Situation 3 buy a truck with an issuance of new common sharesAsset1 truck long termdoes not get expense not in income statementThe Balance Sheet Lists things in Order of Liquidity ASSETS Owned by the company Current Assets realizable within one year Cash available immediately Shortterm investments available quickly Accounts receivable available within 2 months Inventory maybe longer than 2 months Longterm Assets used indefinitely
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