Rule #2 - Balance Sheet - Accounting Guide Flashcards

Q: What does the Balance Sheet show?

A: A company’s assets, liabilities, and equity at a specific point in time.

Q: What’s the Balance Sheet equation?

A: Assets = Liabilities + Equity

Q: What are Assets?

A: Things the company owns that will bring in cash in the future (e.g. cash, inventory, buildings).

Q: What are Liabilities?

A: Debts or obligations that will cost the company money in the future (e.g. loans, unpaid bills).

Q: What is Equity?

A: The company’s own money — money from shareholders or profits saved up.

Q: Why must the Balance Sheet balance?

A: Because everything the company owns (Assets) must be funded by either debt (Liabilities) or owner money (Equity).

Q: What’s an example of a Current Asset?

A: Cash, Accounts Receivable, or Inventory (used or turned into cash in <1 year).

Q: What’s an example of a Long-Term Asset?

A: PP&E (Property, Plant & Equipment), Goodwill, Long-Term Investments.

Q: What’s an example of a Current Liability?

A: Accounts Payable, Accrued Expenses, Short-Term Debt (due within 1 year).

Q: What’s an example of a Long-Term Liability?

A: Long-Term Debt, Deferred Taxes, Deferred Revenue.

Q: How is Equity created?

A: Through issuing stock or keeping profits (retained earnings).