Topic 3: The Balance Sheet

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31 Terms

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Assets

Resources a company owns or controls expected to provide future economic benefits

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Liabilities

Obligations the company must settle in the future

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Owners’ Equity

The residual interest in assets after deducting liabilities

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Accounting Equation

Assets = Liabilities + Owners’ Equity

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Current Assets

Assets expected to be used or converted into cash within one year

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Long-Term Assets

Assets expected to provide benefits beyond one year

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Cash

Most liquid asset

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Accounts Receivable

Amounts owed to the company by customers from credit sales

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Inventory

Goods held for sale as part of normal business operations

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Property

Plant

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Intangible Assets

Non-physical assets like patents or trademarks purchased from others

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Current Liabilities

Obligations expected to be paid within one year

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Accounts Payable

Amounts owed for goods or services received but not yet paid for

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Accrued Liabilities

Expenses incurred but not yet paid or recorded

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Long-Term Liabilities

Obligations not due within the next year

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Notes Payable

Written promises to pay a certain amount in the future

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Common Stock

Represents ownership in a corporation and includes voting rights

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Preferred Stock

Stock that provides fixed dividends and has priority over common stock in asset claims

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Paid-In Capital

Funds raised by issuing stock

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Retained Earnings

Cumulative net income not paid out as dividends but reinvested in the business

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Treasury Stock

Company’s own stock that it has repurchased

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Accumulated Other Comprehensive Income

Items that affect equity but not net income

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Recognition

Deciding which items to include in the financial statements

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Valuation

Assigning a dollar amount to an asset or liability

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Historical Cost

Original cost of an asset

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Market Value

Current value of an asset if sold in the open market

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Balance Sheet Format

Usually organized by liquidity: current assets

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Working Capital

Current assets minus current liabilities

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Liquidity

Ease with which an asset can be converted into cash

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Comparative Balance Sheet

Presents financial positions for multiple periods side-by-side

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Transaction Analysis

Evaluating the effects of business events on the accounting equation