Balance Sheet
Module 2:
Completing the Accounting Cycle
Duration:
45-60 minutes
Level:
Beginner to Diploma-Level
Lesson Objectives
➛ Understand the purpose of the Balance Sheet
➛ Identify assets, liabilities, and equity
➛ Apply the accounting equation correctly
➛ Prepare a classified Balance Sheet
➛ Explain the relationship between the Balance Sheet and other financial statements
Key Vocabulary
➛ Balance Sheet
➛ Assets
➛ Liabilities
➛ Equity
➛ Current Assets
➛ Current Liabilities
➛ Accounting Equation
What Is a Balance Sheet?
The Balance Sheet shows the financial position of a business at a specific point in time.
It answers the question
What does the business own and owe on this date?
Accounting Equation
Assets = Liabilities + Equity
➛ This equation must always balance
➛ Every transaction affects at least two elements
Balance Sheet Structure
Assets
Current Assets
Non-Current Assets
Current Assets
Non-Current Assets
Liabilities
Current Liabilities
Long-Term Liabilities
Current Liabilities
Long-Term Liabilities
Equity
Capital
Retained Earnings
Capital
Retained Earnings
Link to Other Statements
➛ Net income comes from the Income Statement
➛ Ending capital comes from Owner’s Equity Statement
➛ Balance Sheet is prepared last
Classify Accounts
Classify each as Asset, Liability, or Equity
➛ Cash
➛ Accounts Payable
➛ Equipment
➛ Capital
➛ Loan Payable
➛ Accounts Receivable
Accounting Equation Practice
A business has
➧ Assets = 50,000
➧ Liabilities = 18,000
Task
Calculate Equity.
Prepare a Balance Sheet
The following balances exist on 31 December
Cash
Accounts Receivable
Equipment
Accumulated Depreciation
Accounts Payable
Loan Payable
Capital
Accounts Receivable
Equipment
Accumulated Depreciation
Accounts Payable
Loan Payable
Capital
8,000
4,000
20,000
5,000
6,000
9,000
12,000
4,000
20,000
5,000
6,000
9,000
12,000
Task
Prepare a Balance Sheet.
True or False
➧ Balance Sheet shows financial position at a specific date.
➧ Expenses appear on the Balance Sheet.
➧ Assets must equal liabilities plus equity.
➧ Capital is a liability.
➧ Balance Sheet is prepared before Income Statement.
Mini Case Study
A retail shop wants to know its financial position at year-end.
Questions
➛ Which statement shows what the business owns and owes?
➛ Name two current assets.
➛ Name one long-term liability.
➛ Why must the balance sheet balance?
➛ Which statement provides net income used in equity?
Quick Quiz
➛ What does a Balance Sheet show?
➛ State the accounting equation.
➛ True or False | Equipment is a current asset.
➛ Which category does Accounts Payable belong to?
➛ Name one example of equity.
Answers ➧ Here
Statement of Owner’s Equity ➧ Here