2.1 Format of the Balance Sheet
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The document discusses the format and key components of a balance sheet. A balance sheet provides a snapshot of a business's financial position at a specific point in time, showing its assets, liabilities, and owner's equity. It has three sections - assets, liabilities, and owner's equity. Assets are items owned that provide future benefits, liabilities are amounts owed, and owner's equity is the residual claim on assets. The accounting equation of assets = liabilities + owner's equity must balance, demonstrating that the sources of funds for assets are claims on assets by creditors and owners. A balance sheet can be prepared monthly, quarterly, half-yearly, or annually depending on a business's reporting needs.
2.1 Format of the Balance Sheet
- 1. 2.1 FORMAT OF THE BALANCE SHEET
- 2. Video of this presentation at… YouTube Channel for VCE Accounting
- 3. © Michael Allison. Author’s permission required for external use. The Going Concern Principle states that the life of the business is assumed to be infinite and continue forever… The Reporting Period Principle states that the business must divide its life into periods of equal length, e.g. month, quarter, year. 2.1 FORMAT OF THE BALANCE SHEET Today Today 2015 2016 2017
- 4. © Michael Allison. Author’s permission required for external use. At the end of each reporting period, the business needs to prepare its financial reports to assess its financial position and performance: Income Statement Cash Flow Statement Balance Sheet The financial position of the business is shown in the Balance Sheet Today 2015 2016 2017 Income Statement Cash Flow Statement Balance Sheet Income Statement Cash Flow Statement Balance Sheet Income Statement Cash Flow Statement Balance Sheet 2.1 FORMAT OF THE BALANCE SHEET
- 5. © Michael Allison. Author’s permission required for external use. A Balance Sheet is a snapshot (photo) of what a business owns (Assets) and owes (Liabilities) at any given time Depending on the preference of the firm, a Balance Sheet can be prepared for a reporting period of: 1 month – called “Monthly” 3 months – called “Quarterly” 6 months – called “Half-Yearly” 12 months – called “Annually” J DF M M J J A S O NA 2.1 FORMAT OF THE BALANCE SHEET
- 6. © Michael Allison. Author’s permission required for external use. The Balance Sheet has 3 sections: Assets • Resources controlled by the business • Arising from past events • That have future inflows of economic benefits Liabilities • Present obligations the business must meet • Arising from past events • That will result in an outflow of economic resources Owner’s Equity The residual interest in the firm’s assets after deducting all of its liabilities 2.1 FORMAT OF THE BALANCE SHEET
- 7. © Michael Allison. Author’s permission required for external use. The Balance Sheet has 2 sides: Balance Sheet Assets Liabilities iPhone 5 $800 Loan from parents $200 Owner’s Equity Capital $600Assets Liabilities Owner’s Equity ASSETS side… 2.1 FORMAT OF THE BALANCE SHEET EQUITIES side…
- 8. © Michael Allison. Author’s permission required for external use. Example: you need $800 for a new phone but you only have $600 in your bank account To make up the difference, your parents give you $200 as a loan to buy the phone to be repaid by the end of the year BALANCE SHEETS How much are your Assets? Assets Liabilities Owner’s Equity $800 How much are your Liabilities? $200 So how of the phone do you actually “own”? $600 Owner's Equity, $600 Liabilities , $200 Your $800 Asset is made up of…
- 9. © Michael Allison. Author’s permission required for external use. The “Accounting Equation” is designed to mirror the Balance Sheet BALANCE SHEETS Assets Liabilities Owner’s Equity= + Balance Sheet Assets Liabilities iPhone 5 $800 Loan from parents $200 Owner’s Equity Capital $600 Assets Liabilities Owner’s Equity Balance Sheet Assets Liabilities iPhone 5 $800 Loan from parents $200 Owner’s Equity Capital $600 Balance Sheet Assets Liabilities iPhone 5 $800 Loan from parents $200 Owner’s Equity Capital $600 Balance Sheet Assets Liabilities iPhone 5 $800 Loan from parents $200 Owner’s Equity Capital $600 Balance Sheet Assets Liabilities iPhone 5 $800 Loan from parents $200 Owner’s Equity Capital $600 Balance Sheet Assets Liabilities iPhone 5 $800 Loan from parents $200 Owner’s Equity Capital $600 Balance Sheet Assets Liabilities iPhone 5 $800 Loan from parents $200 Owner’s Equity Capital $600 $800 $200 $600 Balance Sheet Assets Liabilities iPhone 5 $800 Loan from parents $200 Owner’s Equity Capital $600 Balance Sheet Assets Liabilities iPhone 5 $800 Loan from parents $200 Owner’s Equity Capital $600 Balance Sheet Assets Liabilities iPhone 5 $800 Loan from parents $200 Owner’s Equity Capital $600
- 10. © Michael Allison. Author’s permission required for external use. TASK In-class Homework SQ1 X