Unit 2 Flashcards
Chp 4 (14 cards)
What is the purpose of the balance sheet?
Summarize assets and liabilities in order to measure solvency and liquidity
What is on the left side of the balance sheet?
Assets - Current and noncurrent assets
What is on the right side of the balance sheet?
Liabilities - current liabilities, noncurrent liabilities, and owner’s equity
What is the equation for owner’s equity?
Owner’s equity = total assets - total liabilities
Why is it called the balance sheet?
Because it follows the balance equation:
total assets = total liabilities + Owners equity
The balance sheet summarizes the assets and liabilities of the business and is used to measure both __a__ and __b__.
a) solvency
b) liquidity
If a business has a total asset value of $1,000 and a total liability value of $600, what is the total value of the firm’s equity?
$400
1000 - 600 = 400
An asset that will be used or sold to generate revenue within one year is called:
A) Current B) Non-current C) Profitable D) Equity
A) Current
Which of the following would NOT be included as a current liability?
A) Land loan B) Land loan payment due this year C) Accounts payable D) Operating lines of credit
A) Land loan
More complex balance sheets break assets and liabilities down into one additional category
Intermediate assets/liabilities
Which of the following is a short-run concept that compares current assets or current liabilities?
A) Liquidity B) Solvency C) Profitability D) Efficiency
A) Liquidity
Which of the following is a long-run concept that compares total assets to total liabilities?
A) Liquidity B) Solvency C) Profitability D) Efficiency
B) Solvency
The format of the balance sheet is a visual illustration of the balance sheet equation, and also allows for a quick look at how well a company is performing:
A) Maturity matching B) Revenue/expense matching C) Accrual adjustments D) Asset valuation
A) Maturity matching
