Describing a Balance Sheet

Defining the Responsibilities of an Accountant

1. To record incoming transactions in a consistent manner
2. To validate incoming transactions and operations
3. To report transactions in a clear and concise manner

Defining the Functions of an Accountant

1. They answer questions about what a business has

   • This includes listing out their assets

2. They answer questions about what a business owes

   • This includes listing out their debts

3. They answer questions about what a business owns

   • This includes listing out their equities

4. They answer questions about how much a business makes

   • This includes listing out their profits

Defining Accounting Statements

1. Balance Sheet

   • Summarizes what a firm owns and owes at a point in time
   • Estimates what its equity is worth
   • This statement answers the first, second, and third questions about ownership and debts

2. Income Statement

   • Reports on how much a business earned in its accounts
   • Provides details on revenues and expenses in a given period
   • This statements answers the fourth question about profitability

3. Statement of Cash Flows

   • Measures how much a business earned in cash
   • Reports on cash inflows and outflows in a given period
   • This statement answers the fourth question about profitability

Describing a Balance Sheet

• A balance sheet reports assets and liabilities

• Assets can fall under the following general categories:

  • Fixed assets: long-lived physical assets
  • Current assets: short-lived physical assets
  • Financial assets: investments in securities and other businesses
  • Intangible assets: assets that are not physical

• Liabilities can fall under the following general categories:

  • Current liabilities: Short-term obligations
  • Debts: Long-term debt
  • Other liabilities: Other long-term obligations
  • Equity: shareholders' equity

References

• An Overview of Financial Statements