Financial Accounting: Assets, Liabilities, and Balance Sheet Concepts

Assets

What the company owns (e.g., cash in bank, inventory, equipment, accounts receivable).

Liabilities

What the company owes (e.g., loans, debts, accounts payable).

Owner's Equity

The owner's share in the company (e.g., capital invested, profit).

Balance Sheet

An accounting report that details a firm's financial position at a particular point in time by reporting its assets, liabilities and owner's equity.

Accounting Equation

Assets = Liabilities + Owner's Equity.

Current Assets

Economic resources that are expected to produce a future economic benefit (e.g., cash) within 12 months.

Non-Current Assets

Long-term assets that are not expected to produce an economic benefit within 12 months.

Current Liabilities

Debts or obligations that are expected to be paid within 12 months.

Non-Current Liabilities

Long-term obligations that are due after more than 12 months.

Liability

A present obligation of an entity to transfer an economic resource as a result of past events.

Owner's Equity

What is 'left of' the assets for the owner, after paying all of their liabilities.

Capital Contributions

Funds that the owner invests in the business.

Drawings

Withdrawals made by the owner from the business.

Liquidity

How easily a company can convert assets to cash to meet short-term obligations.

Quiz Question 1

If a business has assets worth $80,000 and liabilities worth $35,000, what is its owner's equity? $45,000.

Quiz Question 2

Which of the following is NOT a correct rearrangement of the accounting equation? Assets = Owner's Equity - Liabilities.

Quiz Question 3

XYZ Ltd has total assets worth $100,000, which includes cash of $20,000, inventory of $30,000, accounts receivable of $15,000, and property valued at $35,000. The company also has liabilities of $40,000. What is the value of XYZ' Ltd's non-current assets? $35,000.

Economic Resource

An asset that is expected to produce a future economic benefit.

Accounts Payable

Money owed by a business to its suppliers shown as a liability on the balance sheet.

Short-term Loans

Loans that are expected to be paid back within 12 months.

Accrued Expenses

Expenses that have been incurred but not yet paid.

Long-term Loans

Loans that are due after more than 12 months.

Mortgages

Loans secured by the collateral of specified real estate property.