Chapter 2 ~ Balance Sheet?

FINANCIAL POSITION
 Assets are all things that a business owns, which
have value.

 Equities are a portion of the assets that a

business owner has financial rights to (what the
owner actually owns).

 Liabilities are the other portion of the assets

that are owned by other companies and banks
that have loaned money to the business.
Chapter 2 ~ Balance Sheet
Two kinds of equities:
 Equity of persons to whom a
business owes money (liabilities).
 Equity of the owner. The value of
the owner’s equity is called capital.
Chapter 2 ~ Balance Sheet
Assets = Liabilities + Capital (Or Owner’s Equity)

Assets - Liabilities = Capital (Or Owner’s Equity)

Chapter 2 ~ Balance Sheet
The basic form of business ownership is the sole
proprietorship. The owner is personally
responsible for all of the liabilities of the
business. If the business fails it results in the
owner losing personal assets; however, you are
your own boss & many sole proprietors do very
well because of the owner’s talents & desires.
Chapter 2 ~ Balance Sheet
 To start a new accounting system for a
proprietorship the first thing to do is prepare a list
of the business’ assets & liabilities. Using the
accounting equation the equity (capital) can be
calculated.
Assets=Liabilities+Capital
5000 = 2000 + ?
Chapter 2 ~ Balance Sheet
Both sides of the equation must always balance.

Assets=Liabilities+Capital
5000 = 2000 + ?
 Chapter 2 ~ Balance Sheet?
A Balance Sheet shows the financial position of a
person, business or organization. When starting a
new accounting system the opening balance sheet
is the first thing recorded.
Chapter 2 ~ Balance Sheet
Balance Sheets are prepared in a particular way:

1. Heading – Who, what & when. The

business name, the accounting
document & the date it was
prepared. Centred on the page. E.G.
Bill’s Garage
Balance Sheet
October 1, 2005
 Chapter 2 ~ Balance Sheet
2. Assets – Write the title “ASSETS” underlined, on the
left-hand side. Below list assets & values. Assets are
listed in order of liquidity (how fast they can be
converted into cash).
Chapter 2 ~ Balance Sheet
3. Liabilities – Write the title “LIABILITIES”
underlined on the right-hand side. Below list
liabilities and values. Rule a single line across
the amount column under the last amount.
Write “TOTAL LIABILITIES” below the last
liability & total the amounts in the amount
column. Liabilities are generally listed in the
order in which they are due.
 4. Capital – Write the title
“EQUITY” below the liability
Chapter 2 ~ Balance section. Write the owner’s
Sheet name followed by the word
Capital on the line below.
Calculate the capital by
subtracting the total
liabilities from the total
assets. Enter this amount on
the same line as the owner’s
name.
Chapter 2 ~ Balance Sheet
5. Rule a single line across both the left & right
amount columns under the last amount in the
longer column. On the next line write “TOTAL
ASSETS” and write in the total assets. Write
“TOTAL LIABILITIES & EQUITY” and enter the
total liabilities & capital. Double rule under the two
totals.
Chapter 2 ~ Balance Sheet
ACCOUNTS RECEIVABLE (DEBTORS): Debts of
customers. A debtor is someone who owes money to
the business. They are assets.

ACCOUNTS PAYABLE (CREDITORS): Debts owed by the

business. A creditor is anyone to whom the business
owes money. They are liabilities.
Chapter 2 ~ Balance Sheet
BASIC RECORDKEEPING PRACTICES
 
- Do not abbreviate the names of businesses on their
financial statements.
- Use a “-“ or “00” to show an even dollar amount (no cents)
- Use a single line (above a total) to show a column has been totalled.
- Use a double line to show a final total.
- Your work must be neat and perfectly legible.
- Ensure numbers are written in the right boxes when using columnar
paper.