Chapter 3

Showing Financial Condition in the Balance Sheet

IN THIS CHAPTER

Bullet Reading the balance sheet

Bullet Categorizing business transactions

Bullet Connecting revenue and expenses with their assets and liabilities

Bullet Examining where businesses go for capital

Bullet Understanding values in balance sheets

This chapter explores one of the three primary financial statements reported by business and not-for-profit entities: the balance sheet, which is also called the statement of financial condition and the statement of financial position. This financial statement summarizes the assets of a business and its liabilities and owners’ equity sources at a point in time. The balance sheet is a two-sided financial statement.

The balance sheet may seem to stand alone 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 ...

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