Balance Sheet Flashcards
What is the Balance Sheet equation?
Assets = Liabilities + Owners’ Equity
This equation represents the relationship between a company’s assets, liabilities, and equity, indicating that all assets are financed either by borrowing money or by using the owners’ funds.
What is accounting?
The process of keeping financial (monetary) records
Accounting includes recording, classifying, and summarizing financial transactions.
Define transactions in a business context.
Any business activity that involves money
Transactions can include sales, purchases, payments, and other financial exchanges.
What is the term for all the money a business makes?
Revenue
What are all the money a business spends called?
Expenses
What is the formula to determine profit?
Revenue > Expenses = Profit
What happens if revenue is less than expenses?
Loss
Indicates that the business is not generating enough income to cover its costs.
Are financial statements required by law?
Yes
Businesses must prepare financial statements to comply with legal and regulatory requirements.
What is bookkeeping?
The recording of all financial transactions
Essential for maintaining accurate financial records.
What are the two main financial statements?
1) Balance Sheet
2) Income Statement
These statements provide a summary of a company’s financial position and performance.
What are the three main components of a Balance Sheet?
Assets, Liabilities, Owner’s Equity
A Balance Sheet provides a financial snapshot of a business at a specific point in time.
Define an asset in the context of a business.
Something the business owns
Assets can include cash, property, inventory, etc.
What is a liability?
Something the business owes
Liabilities can include loans, accounts payable, mortgages, etc.
What does Owner’s Equity represent?
The amount of money contributed to the business by shareholders
Owner’s Equity can also include retained earnings.
Why are Balance Sheets described as snapshots?
Because the information in the statement is constantly changing
Balance Sheets reflect a business’s financial position at a specific moment.
Give two examples of assets.
Cash, Land
Other examples may include inventory, equipment, and accounts receivable.
Fill in the blank: A _______ is something the business owns.
Asset
Assets can be tangible or intangible.
True or False: Owner’s Equity only includes money contributed by shareholders.
False
Owner’s Equity may also encompass retained earnings and additional paid-in capital.
What is accounts receivable?
An asset
Accounts receivable represents money owed to a company by its customers.
What does accounts receivable indicate?
Someone owes you money
This reflects sales made on credit.
What is accounts payable?
A liability
Accounts payable represents money a company owes to its suppliers.
What does accounts payable indicate?
You owe someone money
This reflects purchases made on credit.
Give examples of liabilities.
- Bank Loans
- Mortgages
Liabilities are obligations that a company needs to settle in the future.
Give examples of owner’s equity.
- Capital
- Shares
Owner’s equity represents the owner’s claim after liabilities are deducted from assets.
