BALANCE SHEET Flashcards

1
Q

The Balance Sheet

A

Definition: The balance sheet is a fundamental financial statement that provides a snapshot of a company’s financial position at a specific point in time, typically at the end of an accounting period.
Components: Assets, Liabilities and Equity

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2
Q

Balance sheet formula

A

total assets = total liabilities + total equity.

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3
Q

Assets

A

Definition: Assets are economic resources that a company owns or controls, which are expected to provide future benefits.

Types:
Non-Current Assets: Long-term assets not intended for sale, such as property, plant, equipment, and intangible assets.
Current Assets: Short-term assets that are expected to be converted into cash or used up within one year, including cash, accounts receivable, and inventory.

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4
Q

Formula for Total Assets

A

Total Assets = Non-Current Assets + Current Assets

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5
Q

Liabilities

A

Definition: Liabilities are obligations or debts that the company owes to external parties. All businesses must take on liabilities in order to operate and grow. A proper balance of liabilities and equity provides a stable foundation for a company.
Types:
Non-Current Liabilities: Long-term obligations, such as long-term loans and bonds.
Current Liabilities: Short-term obligations that the company needs to settle within one year, including accounts payable, short-term loans, and accrued expenses.

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6
Q

Formula for Total Liabilities

A

Total Liabilities = Non-Current Liabilities + Current Liabilities.

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7
Q

Formula for Net Assets

A

Net Assets = Total Assets - Total Liabilities.

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8
Q

Equity

A

Definition: Theamount of money that would be returned to a business if all of the assets were liquidated. It is the value of your business after deducting your liabilities from your assets.
Components:
Share Capital: The amount invested by shareholders in the company by purchasing shares.
Retained Earnings: Accumulated profits that the company has retained and not distributed to shareholders as dividends.

Importance: Equity indicates the company’s net worth and the shareholders’ stake in the business. It is crucial for assessing the financial health and solvency of the company.

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9
Q

Formula for Total Equity

A

Total Equity = Share Capital + Retained Earnings.

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