BUSI 1001 Midterm: Mid_Term_Review_Ch_1_2_3_4.docx
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Friday October 17th 2014
Chapter 1 – Introduction to Financial Statements
The Balance Sheet: provides a list of all assets controlled by an entity and a list of how these assets are
financed; either through liabilities or shareholders’ equity.
Assets Liabilities & Shareholders’ Equity
The Accounting Equation: Assets = Liabilities + Shareholders Equity
Asset: a resource controlled by the entity as a result of past events and from which future
economic benefits are expected to flow to the entity.
Current Asset: resources that are expected to be converted into cash within a year. Ex.
Cash, short-term investments, accounts receivable, inventory, prepaid expenses.
Noncurrent Asset: assets that will be used up in business for periods exceeding one year.
Ex. Long-term investments, land, equipment, patents.
Liability: a present obligation of the entity arising from past events, the settlement of which is
expected to result in an outflow from the entity of resources embodying economic benefits.
Current Liability: obligations that are reasonably expected to be liquidated within one
year. Ex. Accounts payable, bank indebtedness dividends payable, sales tax, unearned
Equity: the residual interest in the assets of the entity after deducting all its liabilities.
Share of the capital: the investment made by shareholders in the company.
Retained earnings = Retained earnings, beginning of the year + net income for the year –
dividends declared to shareholders during the year.
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