Classify each of the following as an asset or a liability: office furniture, land, bank loan, house and lot, an unpaid heating bill, an amount loaned to R. Jonas, mortgage payable, automobile, a bank deposit.

Assets: office furniture, land, house and lot, an amount loaned to R. Jonas, automobile, a bank deposit. Liabilities: bank loan, an unpaid heating bill, mortgage payable.

Karen Lipka has assets of $150,000 and liabilities of $65,000. What is her equity?

Karen Lipka's equity is $85,000.

If the total assets of a business are $37,486.49 and the total liabilities are $11,547.80, calculate the owner’s equity.

The owner’s equity is $25,938.69.

On December 31, 20–1, A. Lower’s accounting equation was: Assets ($150,000) – Liabilities ($70,000) = Equity ($80,000). If during 20–2 the assets increase by $70,000 and the liabilities decrease by $20,000, calculate the owner’s equity at December 31, 20–2.

The owner’s equity at December 31, 20–2 is $170,000.

List Claude Pineau’s assets and liabilities, and calculate his equity.

Assets: Bank balance $3,650, Home $492,000, Furniture $55,000, Summer property $225,000. Liabilities: Mortgage $162,360, Unpaid bills $4,200, Loan from father-in-law $50,000. Equity: $558,090.

Paul Silva’s assets and liabilities are listed below. Calculate Paul Silva’s equity.

Assets: Bank balance $856.25, House and lot $185,000, Cash on hand $85.35, Miscellaneous equipment $1,850, Household furniture $4,800, Amount loaned to Phil Silva $2,000. Liabilities: Bank loan $5,000, Amount owed to Imperial Oil $135.60, Amount owed to Weston Hydro $85.50, Mortgage on house and lot $90,000. Equity: $99,370.50.

The formal way of presenting financial position is by means of a balance sheet.

A balance sheet is a statement showing the financial position of a person, business, or other organization.

Purpose of a balance sheet

To show the financial position of an entity.

A personal balance sheet

Shows the financial position of Chris Turner.

A balance sheet of a small business

Shows the financial position for Easy Rent-Alls.

Common purpose of balance sheets

To show financial position despite differences in appearance.

Important Features of the Balance Sheet

The balance sheet is set up in the form of the fundamental accounting equation: A = L + OE. Assets appear on the left side, and liabilities and the owner’s equity appear on the right side.

Three-line Heading in Balance Sheet

The heading tells WHO (name of the individual, business, or organization), WHAT (name of the financial statement), and WHEN (date on which the financial position is determined).

Order of Listing Assets

Assets are generally listed in order of liquidity, meaning how quickly they can be converted into cash. Cash is listed first, followed by Accounts Receivable, and then long-lasting assets like equipment and buildings.

Order of Listing Liabilities

Liabilities are generally listed in the order in which they are normally paid.

Financial Details on Balance Sheet

Financial details of any item are fully disclosed on a balance sheet. For example, Land and Buildings are listed with their respective values, and the Mortgage Payable is listed in the Liabilities section.

Final Totals on Balance Sheet

The two final totals, one on each side of the balance sheet, are recorded on the same line and underlined with a double line.

Accounts Receivable represents debts owed by customers who have bought goods or services on credit. These are considered assets on the balance sheet.

Accounts Payable represents debts the business owes to others. These are considered liabilities on the balance sheet.

A debtor is anyone who owes money to the business.

Anyone to whom the business owes money.

Preparing a Balance Sheet: Step 1

Write the statement heading on columnar paper, including the name of the business, the name of the statement, and the date.

Preparing a Balance Sheet: Step 2

Write "Assets" at the top of the left-side column and list individual assets underneath.

The heading on a balance sheet

Figure 2.3 shows the heading on a balance sheet, including the business name, statement name, and date.

The assets listed on a balance sheet

Figure 2.4 illustrates the listing of assets on a balance sheet, with amounts in the money column.

Small businesses list assets in order of liquidity.

Cash is listed first, followed by accounts receivable, supplies, and long-lasting assets.

Liabilities on a balance sheet

Listed in the order they must be paid, usually in alphabetical order.

Subheading 'Liabilities' on a balance sheet

Write it at the top of the right-side column and list liabilities as shown in Figure 2.5.

Owner's Equity on a balance sheet

Write beneath liabilities, including the owner's name plus 'Capital' and the equity figure.

The owner's equity is recorded on a balance sheet.

Owner's equity represents the owner's claim after all liabilities have been settled.

Complete the balance sheet by writing in the final totals on the first fully open line.

Write "Total Assets" on the left side and "Total Liabilities and Equity" on the right side. The totals must agree, with a single ruled line above and a double ruled line below each total.

Develop the habit of using dollar signs correctly on balance sheets.

A dollar sign is placed with the first amount in every column and beneath each single ruled line in each column.

When to abbreviate names on financial statements.

Avoid abbreviating names on financial statements unless the business name includes an abbreviation. For example, use "Ltd." for General Bakeries Ltd., but do not abbreviate "Company" to "Co."

Importance of using columnar paper in accounting.

Columnar paper helps accountants place figures carefully in columns, ensuring correct totals without using commas or decimal points.

How to show even-dollar amounts on columnar paper.

Use a dash in the cents column to represent even-dollar amounts, e.g., 965— instead of 965.00.

Use of ruled lines in totaling columns.

Draw a single line beneath a column of figures to be totaled, and place the total beneath this line.

Illustration of columnar paper with figures and totals.

The diagram shows how figures are placed in columns and how totals are calculated using columnar paper.

A double ruled line is drawn beneath the final total on a balance sheet.

This indicates the end of the balance sheet and signifies that the total is final and accurate.

Single ruled lines should be placed close to the "total" figure, not immediately beneath the figures in the column.

This helps in clearly distinguishing the total from the other figures in the balance sheet.

Neatness in accounting work is crucial to avoid misinterpretation.

Accountants must ensure their work is neat and legible to prevent misinterpretation of writing or numbers.

The importance of using a ruler in accounting exercises.

Using a ruler helps maintain accuracy and clarity by ensuring straight lines beneath headings and in columns.

Balance sheet definition

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time.

Financial Position Concepts Flashcards

Student preview

100 questions

Show all answers

1.

FLASHCARD QUESTION

Front

Financial position is determined by assets, liabilities, and equity.

Back

The financial position of a business is based on its assets, liabilities, and owner's equity.

2.

FLASHCARD QUESTION

Front

Assets are items of value owned by a person or business.

Back

Assets are things that you own that have dollar values.

3.

FLASHCARD QUESTION

Front

Liabilities are debts owed by a person or business.

Back

Liabilities are the total of your debts.

4.

FLASHCARD QUESTION

Front

Equity is the difference between total assets and total liabilities.

Back

Equity is also known as capital, owner’s equity, or net worth.

5.

FLASHCARD QUESTION

Front

Step 1 in determining financial position involves listing assets.

Back

List and total the things of value that you own.

6.

FLASHCARD QUESTION

Front

Step 2 in determining financial position involves listing liabilities.

Back

List and total your debts.

7.

FLASHCARD QUESTION

Front

Step 3 in determining financial position involves calculating equity.

Back

Calculate the difference between total assets and total liabilities.

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