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Questions and Answers
What does the balance sheet measure?
What does the balance sheet measure?
How does a balance sheet differ from an income statement?
How does a balance sheet differ from an income statement?
In the context of a balance sheet, what do assets represent?
In the context of a balance sheet, what do assets represent?
Using the example of purchasing a house, what would be considered equity in the context of a balance sheet?
Using the example of purchasing a house, what would be considered equity in the context of a balance sheet?
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What does the balance sheet track?
What does the balance sheet track?
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Who is credited with creating double-entry accounting?
Who is credited with creating double-entry accounting?
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Why are expenses tracked at historical cost on the balance sheet?
Why are expenses tracked at historical cost on the balance sheet?
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What does the balance sheet reflect?
What does the balance sheet reflect?
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Why do brands like Coca-Cola or Google Alphabet not show their value on the balance sheet?
Why do brands like Coca-Cola or Google Alphabet not show their value on the balance sheet?
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When do intangible assets like a brand appear on a balance sheet?
When do intangible assets like a brand appear on a balance sheet?
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In what order are assets listed on the balance sheet?
In what order are assets listed on the balance sheet?
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How are liabilities and equity listed on the balance sheet?
How are liabilities and equity listed on the balance sheet?
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What is equity?
What is equity?
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What may equity accounts include?
What may equity accounts include?
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What does common equity under equity accounts include?
What does common equity under equity accounts include?
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What does a balance sheet measure?
What does a balance sheet measure?
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How does a balance sheet differ from an income statement?
How does a balance sheet differ from an income statement?
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In the context of a balance sheet, what do assets represent?
In the context of a balance sheet, what do assets represent?
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What is considered equity in the context of a balance sheet?
What is considered equity in the context of a balance sheet?
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How are liabilities and equity listed on the balance sheet?
How are liabilities and equity listed on the balance sheet?
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What is the primary focus of a balance sheet?
What is the primary focus of a balance sheet?
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Why is a balance sheet described as a snapshot at a point in time?
Why is a balance sheet described as a snapshot at a point in time?
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What does the balance sheet track?
What does the balance sheet track?
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Why are intangible assets like brand value not listed on the balance sheet?
Why are intangible assets like brand value not listed on the balance sheet?
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What is the order of listing for assets on the balance sheet?
What is the order of listing for assets on the balance sheet?
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What is equity in the context of a balance sheet?
What is equity in the context of a balance sheet?
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Why do brands like Coca-Cola or Google Alphabet not show their value on the balance sheet?
Why do brands like Coca-Cola or Google Alphabet not show their value on the balance sheet?
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What is the purpose of tracking expenses at historical cost on the balance sheet?
What is the purpose of tracking expenses at historical cost on the balance sheet?
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What do equity accounts on the balance sheet include?
What do equity accounts on the balance sheet include?
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Who created double-entry accounting?
Who created double-entry accounting?
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Study Notes
Understanding Balance Sheets
- The balance sheet tracks liabilities and equity, where investment equals financing and involves double-entry accounting.
- Luca Pacioli created double-entry accounting in 1494.
- Accountants track expenses at book value or historical cost, not current market value, due to difficulty in daily valuation of assets.
- The balance sheet reflects historical spending, not current value, and tracks where the money came from and who is owed based on original spending.
- Tangible assets are listed on the balance sheet, while intangible assets such as brand value or patents are not.
- Brands like Coca-Cola or Google Alphabet do not show their value on the balance sheet due to the difficulty in measuring intangible assets.
- Intangibles, like a brand, do not appear on a balance sheet unless they are purchased from another entity, in which case they are listed as goodwill.
- Assets on the balance sheet are listed in order of liquidity, with current assets being those that can be converted into cash in less than a year.
- Liabilities and equity are also listed in order of payment priority, with current liabilities being due within a year and long-term liabilities due after a year.
- Equity is what remains after all liabilities have been paid and is what ultimately forces the balance sheet to balance.
- Equity accounts may include minority interest, preferred equity, and common equity, with common shareholders having voting rights in the firm.
- Common equity under equity accounts includes subaccounts that represent different categories such as retained earnings and additional paid-in capital.
Understanding Balance Sheets
- The balance sheet tracks liabilities and equity, where investment equals financing and involves double-entry accounting.
- Luca Pacioli created double-entry accounting in 1494.
- Accountants track expenses at book value or historical cost, not current market value, due to difficulty in daily valuation of assets.
- The balance sheet reflects historical spending, not current value, and tracks where the money came from and who is owed based on original spending.
- Tangible assets are listed on the balance sheet, while intangible assets such as brand value or patents are not.
- Brands like Coca-Cola or Google Alphabet do not show their value on the balance sheet due to the difficulty in measuring intangible assets.
- Intangibles, like a brand, do not appear on a balance sheet unless they are purchased from another entity, in which case they are listed as goodwill.
- Assets on the balance sheet are listed in order of liquidity, with current assets being those that can be converted into cash in less than a year.
- Liabilities and equity are also listed in order of payment priority, with current liabilities being due within a year and long-term liabilities due after a year.
- Equity is what remains after all liabilities have been paid and is what ultimately forces the balance sheet to balance.
- Equity accounts may include minority interest, preferred equity, and common equity, with common shareholders having voting rights in the firm.
- Common equity under equity accounts includes subaccounts that represent different categories such as retained earnings and additional paid-in capital.
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Test your knowledge of balance sheets with this quiz! Learn about double-entry accounting, tracking assets, liabilities, equity, and more.