Topic_3_Balance_Sheet_Flashcards
(13 cards)
What does the balance sheet show? (Time)
A company’s financial position at a specific point in time.
What is the accounting equation?
Assets = Liabilities + Owners’ Equity
What are current assets?
Assets expected to be used within one year (e.g., cash, receivables, inventory).
What’s the difference between recognition and valuation?
Recognition = what is reported; Valuation = at what dollar amount.
What is retained earnings?
Cumulative profits retained in the business instead of paid as dividends.
When is a patent recognized on the balance sheet?
Only when purchased, not when internally developed.
What two financial details are found on a balance sheet? (Pre-assessment)
Ownership (equity) and debt (liabilities)
What is ‘owners’ equity’? (Pre-assessment)
The residual interest in the net assets of a company.
What items are included in equity?
Common stock, Preferred stock, Additional Paid-in Capital, Retained Earnings, Treasury Stock, Accumulated Other Comprehensive Income.
What happens on the balance sheet if equipment is bought with cash?
Cash decreases, equipment increases — total assets unchanged but composition shifts.
What is the order of items on a U.S. balance sheet?
Current assets → Long-term assets → Current liabilities → Long-term liabilities → Equity
Why might historical cost be preferred over market value?
It’s more reliable, though less timely or relevant.
What is the purpose of transaction analysis?
To understand how individual transactions affect the accounting equation.
