BAF3M Accounting
Chapter 2 – The Balance Sheet
2.1 Financial Position
• Basic concept to the whole accounting
system
– To determine your financial position
• 1 – list dollar values of things you own
• 2 – list dollar values of things you owe
• 3 – calculate the difference
2.1 Financial Position
Proper Terminology
• 1 –things you own ASSETS
• 2 –things you owe LIABILITIES
• 3 –the difference OWNER’S EQUITY*
• * other names for OE include “NET WORTH”,
“CAPITAL”, or just “EQUITY”
2.1 Financial Position
Fundamental Accounting Equation
• Pg.19 – this relationship is the key to the entire accounting
system
• Assets = Liabilities + Owner’s Equity
A = L + OE
2.1 Financial Position
• P. 19
• 2.1 Questions: #1-6
• 2.1 Exercises: #1-6
2.2 The Balance Sheet
• Formal document which shows financial
position of a person, business or other
organization
• Examples p. 21 Fig 2.1 ‘personal’
AND
Fig 2.2 ‘small business’
2.2 The Balance Sheet
• Set up the form of the fundamental
accounting equation: A = L + OE
• Assets always on LEFT
• Liabilities and Owner’s Equity on RIGHT
• Heading is WHO? WHAT? WHEN?
2.2 The Balance Sheet
• Assets are listed in order of LIQUIDITY
(closest to cash)
• Liabilities listed in order they are paid off
• Final totals get a double underline
2.2 The Balance Sheet
• Accounts Receivable & Accounts Payable
– A.k.a. : “A/R” and “A/P”
– A/R is when someone buys from you, but has
not paid you yet, so its an ASSET
– A debtor is someone who owes you money
– A/P is when you bought something, but have
not paid it yet, so it’s a LIABILITY
– A creditor is someone you owe money to
2.2 The Balance Sheet
• Preparing the Balance Sheet
– Overhead Example, follow along
– 6 steps outlined on p. 23-25
2.2 The Balance Sheet
• Basic Recordkeeping Practices
– Let’s keep these in mind as we proceed
through this course
• Use of Columnar Paper
• Use of Ruled Lines
• Neatness
– (these will all become ‘second nature’ as you progress)
2.2 The Balance Sheet
• p.28 2.2 Q’s: 3, 4, 6, 9, 11, 12
• p. 28 2.2 Ex’s: 1, 2
–
2.3 Claims Against the Assets
• Both creditors and owners have claims to
the assets listed on the balance sheet
• Why?
– Because creditors have usually provided the
funds to the business to purchase the assets
– Upon liquidation of assets, creditors are paid
first
– Leftover amounts go to the owner (capital)
2.4 Accounting Standards
• p. 33
– Accountants have specific standards, rules
and guidelines they must follow in order to
ensure that their work properly done
– Used to be GAAP – Canada now switched
over to IFRS and ASPE
– IFRS  International Financial Reporting
Standards
– ASPE  Accounting Standards for Private
Entreprises
2.4 Accounting Standards
• ASPE – mostly for private companies
• IFRS – mostly for public companies
• Some basic accounting standards will be
pointed out through the course, but a
specific knowledge of all standards is not
required in this course.
• More on these as we need them!
Chapter 2 Review
• Pg. 47
• Review Q’s: 1 - 6