Activity 4 - Understanding the Balance Sheet

What is the primary purpose of a balance sheet?

• To show a company’s revenues and expenses

• To present a snapshot of a company’s financial position at a specific point in time

• To detail the company’s cash inflows and outflows

• To list all company employees

Which of the following is NOT a component of the balance sheet?

• Assets

• Liabilities

• Equity

• Revenue

Which section of the balance sheet shows what the company owns?

• Assets

• Liabilities

• Equity

• Expenses

Which of the following best describes liabilities?

• Resources owned by the company

• Obligations the company owes to others

• The company’s net worth

• The company’s income

What does the equity section of the balance sheet represent?

• The company’s debts

• The owners’ residual interest in the company after liabilities are deducted from assets

• The company’s total revenue

• The company’s cash balance

Which of the following is a current asset?

• Land

• Inventory

• Equipment

• Patents

Which of the following is a non-current asset?

• Cash

• Accounts receivable

• Buildings

• Inventory

Which of the following is a current liability?

• Bank loan due in 5 years

• Accounts payable

• Equipment

• Goodwill

Which of the following is NOT typically found in the equity section of a balance sheet?

• Share capital

• Retained earnings

• Accounts receivable

• Contributed surplus

What is the basic accounting equation represented on the balance sheet?

• Assets = Liabilities + Equity

• Assets = Revenue - Expenses

• Liabilities = Assets + Equity

• Equity = Assets + Liabilities