30 Questions
What does the balance sheet measure?
Investment and financing
How does a balance sheet differ from an income statement?
It is a snapshot at a point in time
In the context of a balance sheet, what do assets represent?
What the money was spent on
Using the example of purchasing a house, what would be considered equity in the context of a balance sheet?
The down payment
What does the balance sheet track?
Liabilities and equity
Who is credited with creating double-entry accounting?
Luca Pacioli
Why are expenses tracked at historical cost on the balance sheet?
Due to difficulty in daily valuation of assets
What does the balance sheet reflect?
Historical spending
Why do brands like Coca-Cola or Google Alphabet not show their value on the balance sheet?
Due to the difficulty in measuring intangible assets
When do intangible assets like a brand appear on a balance sheet?
When purchased from another entity
In what order are assets listed on the balance sheet?
In order of liquidity
How are liabilities and equity listed on the balance sheet?
In order of payment priority
What is equity?
What remains after all liabilities have been paid
What may equity accounts include?
Minority interest, preferred equity, and common equity
What does common equity under equity accounts include?
Retained earnings and additional paid-in capital
What does a balance sheet measure?
Investment and financing
How does a balance sheet differ from an income statement?
Time period covered
In the context of a balance sheet, what do assets represent?
What was spent
What is considered equity in the context of a balance sheet?
Down payment on a house
How are liabilities and equity listed on the balance sheet?
In order of liquidity
What is the primary focus of a balance sheet?
Financial position at a specific point in time
Why is a balance sheet described as a snapshot at a point in time?
It captures the financial position at a specific date
What does the balance sheet track?
Liabilities and equity
Why are intangible assets like brand value not listed on the balance sheet?
They are difficult to measure
What is the order of listing for assets on the balance sheet?
In order of liquidity
What is equity in the context of a balance sheet?
Remains after all liabilities have been paid
Why do brands like Coca-Cola or Google Alphabet not show their value on the balance sheet?
Difficulty in measuring intangible assets
What is the purpose of tracking expenses at historical cost on the balance sheet?
Due to difficulty in daily valuation of assets
What do equity accounts on the balance sheet include?
Minority interest, preferred equity, and common equity
Who created double-entry accounting?
Luca Pacioli
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.
Test your knowledge of balance sheets with this quiz! Learn about double-entry accounting, tracking assets, liabilities, equity, and more.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
