Chapter 9-Accounting
Updated: 6/10/2020
Chapter 9-Accounting
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  • We hope to see if we are in a position to buy a house.
  • My husband and I are planning to buy a home together and were wondering about our financial situation.
  • Alright, sorry for the holdup. Let's get started, shall we?
  • Yes, a balance sheet is one of the financial statements used in business, prepared by accountants to show the financial position of that business or individual on a particular date. If the information in the balance sheet is correct, the left and right side will balance, that is, will be equal in value.
  • A balance sheet?
  • Okay. I think the best thing to do right now is to make a balance sheet.
  • The information on the left side are your assets, which are things a company or individual own such as cash, supplies, equipment and buildings. These also include things paid in advance that have not yet been used, such as prepaid advertising, prepaid insurance, prepaid legal fees and prepaid rent.
  • Oh, ok. So what exactly is the information on the left and right side?
  • On the other hand, the right side includes liabilities, which are obligations of the company/individual; they are amounts owed to creditors for a past transaction and they usually have the word "payable" in their account title. For example, if you purchased a music player for $150 and put $50 toward a down payment, you have debt,or liability of $100.
  • As well as owner's equity which can be thought of as a source of the company's assets. Owner's equity is sometimes referred to as capital or just equity. It is the book value of the company. An example of an owner's equity account is Mary Smith, Capital (where Mary Smith is the owner of the sole proprietorship).
  • Some other terms you will use in a balance sheet include accounts receivable which represents the debts of customers listed in alphabetical order. An example would be your brother owing you $10. Accounts payable which represent debts owed by the business/individual listed in alphabetical order, which could be you owing $20 to a friend. Lastly, a bank loan due on demand means the bank loan could be due before the accounts payable. An example could be you owing $1000 to the bank and having to pay it back at anytime.
  • Yes, but there are few things to follow when making your balance sheet
  • A balance sheet?
  • So with our balance sheet we'll be able to see our financial situation?
  • Assets are listed in order of liquidity—the order within which an asset is converted into cash an example would be listed in this order: Cash,Bank Balance, Accounts Recievable, Supplies etc. Liabilities are listed in the order that they are to be paid.
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