The Balance Sheet Flashcards
What are the defining characteristics of an asset?
It’s something used to earn future profit.
It must be (1) owned or controlled by an entity and (2) its future benefit must be quantifiable.
What are the defining characteristics of a liability?
It is a present obligation that requires future sacrifice.
It’s an obligation resulting from the entity’s past transactions.
How assets are financed.
What is Stockholders’ Equity, generally?
What are its elements?
The financing provided by the owners and the operations of the business.
Common Stock, Additional Paid-In Capital, and Retained Earnings.
Bonus: What are common stock and APC together called?
In what order are assets listed?
In order of liquidity.
In what order are liabilities listed?
In order of maturity.
What is Contributed Capital?
Financing provided by owners. It is the sum of Common Stock and Additional Paid-In Capital.
What is Earned Capital?
Money the entity reinvests in itself from its profits. Retained earnings.
How are Internal Assets reported on the balance sheet?
They are not. The value, say, of a developed trademark is not quantifiable - though if it’s purchased, it of course is quantifiable.
What is Par Value?
The nominal value of a share of stock as specified in the corporate charter.
When calculating Contributed Capital, what is the value of Common Stock?`
The Par Value of the shares. (No. of shares * par value.)
What is Additional Paid-In Captial?
The amount above the par value that an investor pays the company for a share of its stock. (This occurs only once for each particular share: when it is purchased at the IPO.)
What are the steps involved in a journal entry?
- Identify the accounts affected by the transaction.
- Classify the accounts as A, L, or SE.
- Confirm the accounting equation remains true.
What is the Current Ratio? What is it used for?
Current Ratio = Current Assets / Current Liabilities
Used as a quick-glance metric for operational health.
Generally, a ratio of 1.0 or higher indicates an operationally healthy entity.
