Section 3 The Balance Sheet

Section 3 The Balance Sheet

What You’ll Learn

The purpose of a balance sheet.

How to prepare a balance sheet.

How to analyze information on

financial reports.

What You’ll Learn

The purpose of a balance sheet.

How to prepare a balance sheet.

How to analyze information on

financial reports.

Why It’s Important

The balance sheet reports the financial position of a business at a specific point in time.

Why It’s Important

The balance sheet reports the financial position of a business at a specific point in time.

Section 3 The Balance Sheet (con’t.)Section 3 The Balance Sheet (con’t.)

Key Terms balance sheet report form ratio analysis profitability ratio return on sales

Key Terms balance sheet report form ratio analysis profitability ratio return on sales

liquidity ratio current ratio current assets current liabilities quick ratio

liquidity ratio current ratio current assets current liabilities quick ratio

The Balance Sheet

The balance sheet is a report of

the balances in all asset, liability,

and owner’s equity accounts at the

end of the period.

The Balance Sheet

The balance sheet is a report of

the balances in all asset, liability,

and owner’s equity accounts at the

end of the period.

Section 3 The Balance Sheet (con’t.)Section 3 The Balance Sheet (con’t.)

The Balance Sheet (con’t.)

The balance sheet represents the

basic accounting equation; thus, the

assets section total must equal the

total of the liabilities and owner’s

equity sections.

The Balance Sheet (con’t.)

The balance sheet represents the

basic accounting equation; thus, the

assets section total must equal the

total of the liabilities and owner’s

equity sections.

Section 3 The Balance Sheet (con’t.)Section 3 The Balance Sheet (con’t.)

Assets = Liabilities + Owner’s EquityAssets = Liabilities + Owner’s Equity

The Balance Sheet (con’t.)The Balance Sheet (con’t.)

Section 3 The Balance Sheet (con’t.)Section 3 The Balance Sheet (con’t.)

Ratio AnalysisRatio Analysis

Section 3 The Balance Sheet (con’t.)Section 3 The Balance Sheet (con’t.)

Ratio analysis involves the

comparison of two amounts on

a financial statement and the

evaluation of the relationship

between these amounts.

Used to determine the financial

strength, activity, or debt-

paying ability of a business.

Ratio analysis involves the

comparison of two amounts on

a financial statement and the

evaluation of the relationship

between these amounts.

Used to determine the financial

strength, activity, or debt-

paying ability of a business.

Return on SalesReturn on Sales

Section 3 The Balance Sheet (con’t.)Section 3 The Balance Sheet (con’t.)

Determine the portion of each sales

dollar that represents profit.

Determine the portion of each sales

dollar that represents profit.

Net Income $1,150 net income

Sales $2,650 sales

Net Income $1,150 net income

Sales $2,650 sales= = .434 or 43.4%= = .434 or 43.4%

Current RatioCurrent Ratio

Section 3 The Balance Sheet (con’t.)Section 3 The Balance Sheet (con’t.)

Relationship between current

assets and current liabilities.

Relationship between current

assets and current liabilities.

Current Assets $ 37,775

Current Liabilities $11,725

Current Assets $ 37,775

Current Liabilities $11,725= Current Ratio = 3.22 or 3.2:1= Current Ratio = 3.22 or 3.2:1

Quick RatioQuick Ratio

Section 3 The Balance Sheet (con’t.)Section 3 The Balance Sheet (con’t.)

The relationship between short

term assets and current liabilities.

The relationship between short

term assets and current liabilities.

Cash and Receivables $ 22,575

Current Liabilities $11,725

Cash and Receivables $ 22,575

Current Liabilities $11,725= Quick Ratio = 1.92:1= Quick Ratio = 1.92:1

Check Your UnderstandingCheck Your Understanding

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Section 3 The Balance Sheet (con’t.)Section 3 The Balance Sheet (con’t.)