Accounting For Dummies®, 4th Edition

Chapter 5. Reporting Assets, Liabilities, and Owners' Equity

In This Chapter

• Identifying three basic types of business transactions

• Classifying assets and liabilities

• Connecting revenue and expenses with their assets and liabilities

• Examining where businesses go for capital

• Understanding balance sheet values

This chapter explores one of the three primary financial statements reported by businesses — the balance sheet, which is also called the statement of financial condition and the statement of financial position. This financial statement is a summary at a point in time of the assets of a business on the one hand, and the liabilities and owners' equity sources of the business on the other hand. It's a two-sided financial statement, which can be condensed in the accounting equation:

Assets = Liabilities + Owners' equity

The balance sheet may seem to stand alone — like an island to itself — because it's presented on a separate page in a financial report. But keep in mind that the assets and liabilities reported in a balance sheet are the results of the activities, or transactions, of the business. Transactions are economic exchanges between the business and the parties it deals with: customers, employees, vendors, government agencies, and sources of capital. Transactions are the stepping stones from the start-of-the year to the end-of-the-year financial condition.