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.
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.
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