BU121 Study Notes - BU121 Study Notes The Balance Sheet T...

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[BU121 Study Notes The Balance Sheet The balance sheet shows the financial position of a business at a given moment of time The balance sheet simply shows what the firm owns, (assets), and what the firm owes (liabilities) Assets: Resources owned by a business that have measurable money value Equities: The claims of various parties against the assets of a business Two different types of equities; Liabilities: Debts or obligations owed by the business to persons other than the owner of the firm. Owners Equity: The claims of the owners of the business against the assets of the firm. The balance sheet is constructed on the premise that a business is always in a state of balance or equilibrium. Fundamental Accounting Equation: Assets = Liabilities + Owners Equity Assets Current Assets: defined as cash, or assets that will under normal circumstances be converted to cash, sold or consumed within one year of the date of the balance sheet. Listed in order of “declining liquidity” Types of Current Assets Cash (most liquid) Marketable securities (dollar value of the firms holdings) Notes Receivable and Accounts Receivable (show amounts owed to firm by creditors)
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Inventories (Raw Materials, Work-In-Process, Finished Goods) Supplies (used for normal day to day operations) Prepaid Expense Capital Assets (Fixed Assets) Land Building Machinery and Equipment Trucks and Automobiles Tools Capital assets are shown on balance sheet at their “Historical Cost” All capital assets, with the exception of land, tend to depreciate over time. Amortization: Gradually writing-off the value of an intangible asset over a period of time Example; A company purchases a building for $400,000 and estimates that it will have a useful life of 40 years. As such the building will be amortized at a rate of $400,000/40 years = 10,000 per year. Other Assets
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BU121 Study Notes - BU121 Study Notes The Balance Sheet T...

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