3. Balance Sheet Flashcards
What Does The Balance Sheet Show?
What Doesn’t The Balance Sheet Show?
A Snap Shot Of One Day
It Does Not Measure Changes Over A Period Of Time
Balance Sheet is also known as what?
Statment Of Net Worth
if you have an income statment for october31 -December31
what day would the balance sheet be prepared for?
the day ending dec 31
what always accompnies an income statment?
a balance sheet
What are balance sheets based on
historical cost
What is one of the most important thing to remember about asset prices stated on a balance sheet
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
What is shown on the balance sheet in order
Assets
Liabilities
Equity
What are assets and how are they purchased?
Assets are Everything the Company Legally Owns
they are purchased in 2 ways
- its own money (equity)
- borrowed money (debt)
essentially what is the balance sheet showing
Balance sheet is the story of how a company bought equities.
with debt or equity
assets = ?
Assets = liabilities + Equity
Equity =
Equity = assets - liabilities
What is the other name for Net worth?
Net worth = Equity
what are the 2 asset groups?
- 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)
List some current assets
- 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)
how is inventory expressed differently between the
balance sheet & income statment?
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
what is accounts receivable
iou for goods received
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
cash goes up 500k
accounts receivable goes up 500k
total assests goes up to 1million
inventory leaves through the ______ statment
income statment
Name some Non Current Assets
Plant Property and Equipment (PP&E)
(capital goods = goods that help make other goods)
Intangables
brand recognition
what are the 2 types of liabilities
current liabilities
Must be paid within 1 year
non current liabilities
to be paid later than 1 year
what happens to Equity if it is financed through a Liability
(buy 500k inventory with 500k debt)
Equity = Assets - Liabilities
nothing.
Assets go up by the amount that liabilities go up
Equity = 500k - 500k
they net each other out
what are the 2 types of debt?
Current Debt
owed within 1 year
non current debt
owed some time after 1 year
what are some other line items other than bank loan the function like debt
Leases
Pension Obligations
Asset retirment obligations etc etc
what is book value
net worth = equity = book value
when you are buying a stock what are you buying
equity.
what is the stock market price
the markets opinion on the equity in the company
