Accounting BellworkAccounting Bellwork
3rd Hour: A Matter of Ethics p213.
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.
Balancing the ALOE
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.
Balancing the ALOE
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. It is prepared in
report form
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. It is prepared in
report form
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.)
Point in time
Make sure and get this total from the Statement of Changes In Owners Equity Ending Capital Total
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.
Ratio Analysis con’t.Ratio Analysis con’t.
Section 3 The Balance Sheet (con’t.)Section 3 The Balance Sheet (con’t.)
Profitability ratios are used to
evaluate the earnings
performance of the business
during the accounting period.
Profitability ratios are used to
evaluate the earnings
performance of the business
during the accounting period.
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%
For every dollar of sales you make
43.4 cents of profit.
For every dollar of sales you make
43.4 cents of profit.
Current RatioCurrent Ratio
Section 3 The Balance Sheet (con’t.)Section 3 The Balance Sheet (con’t.)
Relationship between current assets (Accts Rec.,
Cash in Bank, Merchandise Inventory) and current
liabilities {Accts. Payables (Must be paid within
the next accounting period.)}.
Relationship between current assets (Accts Rec.,
Cash in Bank, Merchandise Inventory) and current
liabilities {Accts. Payables (Must be paid within
the next accounting period.)}.
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
This ratio indicates that a business is able to pay its debts, that business has current assets which are 3.2 times its current liabilities.
This ratio indicates that a business is able to pay its debts, that business has current assets which are 3.2 times its current liabilities.
Quick RatioQuick Ratio
Section 3 The Balance Sheet (con’t.)Section 3 The Balance Sheet (con’t.)
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
If a business has a quick ratio of 1:1 or
higher, the business has $1 in liquid
assets for each $1 of its current liabilities.
In this case, the business has $1.92 in liquid assets per $1 in current liabilities.
If a business has a quick ratio of 1:1 or
higher, the business has $1 in liquid
assets for each $1 of its current liabilities.
In this case, the business has $1.92 in liquid assets per $1 in current liabilities.
The relationship between short
term assets (can be quickly turned
to cash) and current liabilities.
The relationship between short
term assets (can be quickly turned
to cash) and current liabilities.
Demonstration Problems Ch9
Problem 9-5 through 9-7
Missing 9-6 & 9-7
Prime Printing Co.Balance SheetJune 30, 200-
AssetsCash in BankAccts. Receivable- Jack DipollaAccts. Receivable- Susan HillowayOffice FurnitureOffice EquipmentAutomobile
Total Assets
Accts. Payable – Fucini Corp.Accts. Payable – H&L Co.
Total LiabilitiesWayne Kay, Capital
Total Liabilities & O.E.
4029.45218.41173.64
2432.174106.808124.--
19084.47
1619.432704.81
4324.24
14760.23Owner’s Equity
Liabilities
19084.47
Prime Printing Co.Worksheet
For the Month ended June 30, 200-
Extra Ratio Demo Problems
Current AssetsCurrent Liabilities
80,000 + 115,000 + 75,000 = 270,000 270,000
115,0002.35=2.35:1
The business has current assets that are 2.35 times the liabilities.
Cash and Receivables
Current Liabilities
80,000 + 115,000 = 195,000195,000
115,0001.70=
1.70:1The business has $1.70 in liquid assets for each $1 in current liabilities.
Net Income
Net Sales
190,000
1,320,000.1439 =14.39%==
The percentage indicates that for each dollar of sales produced, 14.39 cents in profit.
Check Your Understanding p222
Check Your Understanding p222
•Thinking Critically 1 & 2
•Problem 9-3
•Understanding Accounting
Concepts and Procedures p224
•Thinking Critically 1 & 2
•Problem 9-3
•Understanding Accounting
Concepts and Procedures p224
Section 1 Preparing the Work Sheet (con’t.)Section 1 Preparing the Work Sheet (con’t.)