Balance Sheet Intro. (18.1)

Question 1

Describe the balance sheets, and what it consists of

Answer 1

The balance sheet (also known as the statement of financial position or statement of financial condition) reports the firm’s financial position at a point in time. The balance sheet consists of assets, liabilities, and equity.

Question 2

Define ‘Assets’

Answer 2

Assets: Resources controlled as a result of past transactions that are expected to provide future economic benefits.

Question 3

Define ‘Liabilities’

Answer 3

Liabilities: Obligations as a result of past events that are expected to require an outflow of economic resources.

Question 4

Define ‘Equity’

Answer 4

Equity: The owners’ residual interest in the assets after deducting the liabilities. Equity is also referred to as stockholders’ equity, shareholders’ equity, or owners’ equity. Analysts sometimes refer to equity as “net assets.”

Question 5

When should an item be recognized on a financial statement? 2 criteria.

Answer 5

A financial statement item should be recognized if a future economic benefit from the item (flowing to or from the firm) is probable and the item’s value or cost can be measured reliably.