The Balance Sheet Flashcards
Balance Sheet
Orderly and measured presentation of the economic wealth of a company at a given moment in time. Statement of financial position.
The balance sheet comprises ASSETS, LIABILITIES and NET EQUITY.
Assets
‘Goods, rights, and other economic resources controlled by the company
as result of past events and from which the company expects to obtain
economic benefits in the future,’
Liabilities
Obligations to external parties that are part the economic wealth.
‘Present obligation of the entity arising from past events, the settlement of
which is expected to result in an outflow of resources embodying economic
benefits’
Net Equity
‘Residual interest in the assets of the entity after deducting all its liabilities.
It includes contributions made to the firm by its owners either at the time of
the constitution, or at a later date, and the retained earnings.
Fundamental Accounting Equation
Assets = Liabilities + Net Equity
or
Net Equity = Assets - Liabilities
Layout of Balance Sheet
- Assets
- Current Assets (Add total next to it)
- Cash/Cash Equivalents (most liquid)
- Receivables (can be converted to cash once collected)
- Financial Assets (liquidity depends on the type of financial assets, but generally less liquid than receivables)
- Inventories (least liquid, as they must be sold and turned into receivables or cash) - Non-Current Assets (Add total next to it)
- Intangible
- Tangible
- Financial Investments - Total Assets
- Liabilities
- Current Liabilities
- Non Current Liabilities
- Total Liabilities
- Net Equity
- Share Capital
- Net Income
- Reserves
Layout of Assets
Current Assets can be classified into:
- Cash/Cash Equivalents, Receivables, Financial Assets, Inventories
Non-Current Assets can be classified into:
- Tangible, Intangible and Financial Investments
Current Assets go before Non-Current Assets because they are more liquid.
Layout of Liabilities
Current and Non-Current.
Layout of Net Equity
Share Capital, Net Income, Reserves/Retained Profit
Types of Current Assets
- Finished Goods
- Raw Materials
- VAT Receivable
- Notes Receivables
- Trade Receivables
- Short-term loans to employees
- Cash
- Cash in Banks
- Current financial investment
Types of Non-Current Assets
- Computer Software
- Industrial Property Rights
- Research
- PPE: Property, plant and equipment Buildings
- Machinery
- IT Equipment
- Investment Property Buildings
- Long-term loans to employees
- Non-current Financial investments
- Non-current guaranties extended
Types of Current Liabilities
- Creditors for services rendered
- Current debt with financial institutions
- Current finance lease payables
- Current payables to suppliers of fixed assets
- Social security, payables
- Trade payables
- Withholding tax payable
Types of Non-Current Liabilities
- Non-Current payables to suppliers if fixed assets
- Non-Current debt with financial institutions
How do we order assets and liabilities?
- Assets are ordered in liquidity (Most Liquid to less liquid)
- Liabilities are orders in maturity (More Mature to Less): The length of time until a liability is due for payment or settlement
