Lesson 4

Balance Sheets

Li, Jialong

2011-2-26

The Accounting Equation

The Basic Rule for all accounting is the Accounting Equation.

Assets = Liabilities + Owners Equity

Example: Let’s see how a business can change and how these changes

effect the business’s accounting equation.

What happened to Sally’s Shoe business?

The Balance Sheet

Definition: the Balance Sheet is a report which shows in a statement form the relationship between Assets, Liabilities and Owners Equity at a point in time.

The report further refines the information by classifying Assets and Liabilities into CURRENT AND NON-CURRENT types.

The Basic format for a BALANCE SHEET

Notes: An Income Statement or P&L has to be completed before a Balance Sheet can be completed as the NET PROFIT balances the two reports together.

Review the example of the following two financial reports below and note how the Net Profit links the two.

Review Questions

Definition and format of a Balance Sheet

Definition of Current and Non-Current Assets and Liabilities

Format of a Balance Sheet and defining Net Assets.

Exercises

Exercises 4.1

Exercises 4.2

Reading and Resources

Student Notes and Readings Lesson 4

The End of Lesson 4