3. Balance Sheet

Question 1

What Does The Balance Sheet Show?

What Doesn’t The Balance Sheet Show?

Answer 1

A Snap Shot Of One Day

It Does Not Measure Changes Over A Period Of Time

Question 2

Balance Sheet is also known as what?

Answer 2

Statment Of Net Worth

Question 3

if you have an income statment for october31 -December31

what day would the balance sheet be prepared for?

Answer 3

the day ending dec 31

Question 4

what always accompnies an income statment?

Answer 4

a balance sheet

Question 5

What are balance sheets based on

Answer 5

historical cost

Question 6

What is one of the most important thing to remember about asset prices stated on a balance sheet

Answer 6

they reflect the PRICE PAID. not the price today.

if there is a property purchased in 1970 and the price of the property doubles the balance sheet will display the PRICE PAID not the current day price

Question 7

What is shown on the balance sheet in order

Answer 7

Assets

Liabilities

Equity

Question 8

What are assets and how are they purchased?

Answer 8

Assets are Everything the Company Legally Owns

they are purchased in 2 ways

• its own money (equity)
• borrowed money (debt)

Question 9

essentially what is the balance sheet showing

Answer 9

Balance sheet is the story of how a company bought equities.

with debt or equity

Question 10

assets = ?

Answer 10

Assets = liabilities + Equity

Question 11

Equity =

Answer 11

Equity = assets - liabilities

Question 12

What is the other name for Net worth?

Answer 12

Net worth = Equity

Question 13

what are the 2 asset groups?

Answer 13

- current assets

• cash & cash equivilints (CDs, Bonds etc)
• Any asset that will turn into cash in 1 year

- non current assets

• everything else (things that will take more than 1 year to turn to cash etc)

Question 15

List some current assets

Answer 15

• Cash
• Cash equivilants (must be liquid and low risk)
• inventory that can be turned into profit within a year (cocao vanilla beans etc for chocolate factory)

Question 16

how is inventory expressed differently between the

balance sheet & income statment?

Answer 16

on the balance sheet all the inventory for the year that can be converted to cash is stated.

on the income statment only the inventory that WAS turned into cash for the quarter is stated (cost of goods)

if we dont sell chocolate bars iventory (cost of goods) will not be stated

Question 17

what is accounts receivable

Answer 17

iou for goods received

Question 18

We sell 1,000,000 in chocolate

• 500k cash
• 500k accounts receivable

if the person receives the inventory what happens to

-total assets, accounts receivable, cash

Answer 18

cash goes up 500k

accounts receivable goes up 500k

total assests goes up to 1million

Question 19

inventory leaves through the ______ statment

Answer 19

income statment

Question 20

Name some Non Current Assets

Answer 20

Plant Property and Equipment (PP&E)

(capital goods = goods that help make other goods)

Intangables

brand recognition

Question 21

what are the 2 types of liabilities

Answer 21

current liabilities

Must be paid within 1 year

non current liabilities

to be paid later than 1 year

Question 22

what happens to Equity if it is financed through a Liability

(buy 500k inventory with 500k debt)

Answer 22

Equity = Assets - Liabilities

nothing.

Assets go up by the amount that liabilities go up

Equity = 500k - 500k

they net each other out

Question 23

what are the 2 types of debt?

Answer 23

Current Debt

owed within 1 year

non current debt

owed some time after 1 year

Question 24

what are some other line items other than bank loan the function like debt

Answer 24

Leases

Pension Obligations

Asset retirment obligations etc etc

Question 25

what is book value

Answer 25

net worth = equity = book value

Question 26

when you are buying a stock what are you buying

Answer 26

equity.

Question 27

what is the stock market price

Answer 27

the markets opinion on the equity in the company