Understanding the Balance Sheet Flashcards
What is the definition of a balance sheet?
A ‘Snapshot’ of a business’s assets, liabilities and equity at a single point in time
What is the core principle of a Balance Sheet?
The stuff a business owns (assets) = the stuff a business owes (liabilities - for third parties) + Equity (for owners)
On the Balance sheet what is the accounting equation?
Assets = Liabilities (for third parties) + Equity (for owners)
What is the definition of Retained Earnings?
Accumulated profits held for future use.
What are the two common categories under EQUITY on the Balance Sheet?
Capital Contributions/Common Stock
Retained Earnings
What is the definition of Capital Contributions/Common Stock?
Money invested into the business by its owner’s/stockholder’s.
What are the two sub categories of Assets on the Balance Sheet?
Current Assets
Non-Current Assets
What are 4 examples of current Assets on the Balance Sheet?
Cash
Accounts Receivable
Other Receivables
Prepaid Expenses
What are two examples of non-current Assets on the Balance Sheet?
Property, Plant & Equipment (Tangible)
Intangible Assets
What are the two sub categories of Liabilities on the Balance Sheet?
Current Liabilities
Non-Current Liabilities
What are 4 examples of current Liabilities on the Balance Sheet?
Accounts Payable
Taxes Payable
Accrued Expenses
Deferred Revenue
What is an example of a non-current liability on the Balance Sheet?
Long Term Loans
How does a CFO approach The Balance Sheet?
They approach it as a Risk-based Approach
Explain what a Risk-based approach means
Each line item on the Balance Sheet is reviewed.
Thinks of all the risks associated with each line item.
Thinks of ways to hedge against those risks.
What is deferred revenue?
Advance payments a company receives for products or services that are to be delivered or performed in the future.
