Balance Sheet Basics Quiz

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.