Ch 3 - Balance sheets Flashcards
What is a balance sheet?
An accounting report which shows the financial position of a business at a given point in time
What is the balance sheet based off?
The accounting equation
What is the accounting equation?
Total assets - Total liabilities = Owner’s equity
What is a current asset?
Assets that are expected to be sold or used up within 12 months
What is a non-current asset?
Longer term assets expected to provide economic benefit for greater than 12 months
What is a current liability?
Obligations expected to be settled within 12 months
What is a non-current liability?
Longer term obligations expected to be settled over a period greater than 12 months
What is liquidity?
The ability of a business to meet its short term obligations as they fall due
How do we measure liquidity?
Working capital
How is working capital calculated?
Current assets - Current liabilities = Working capital
What does a positive working capital mean?
The business is likely to meet its obligations
What does a negative working capital mean?
- Current liabilities are exceeding current assets
- Business could have a liquidity issue
