Module 3(B)
Lecture
Balance Sheet
A balance sheet shows a company’s worth at a particular point in time. The balance sheet
shows the assets, liabilities (debts) and owner’s equity of a business. The balance sheet
shows the value of a business that the owner has built up.
Assets: Things a company owns that are worth cash. We will discuss two types of assets.
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Short-term assets are those assets that can be converted to cash within one year.
Cash of course which needs no conversion, inventory and stocks to name a few.
Long-term assets are those that can take more than a year to convert, machinery,
and other capital equipment, (furniture) for example.
Liabilities: Debts a company must pay that are owed by the business, such as bank loans,
credit-cards purchases, and mortgages.
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
Short-term liabilities must be paid within one year.
Long-term liabilities are those that will be paid over a period of a year.
Owner’s Equity (OE): The difference between assets and liabilities, and represents the
value of the business. Owner’s Equity is left after you subtract liabilities from assets.
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
Assets – Liabilities = Owner’s Equity (OE)
The left side and right side of the equation are always equal
Balance Sheet
Assets
Cash
Inventory
Capital
Equipment
Other Assets
Total Assets
Liabilities
Short- Term
Liabilities
Long-Term Liabilities
$
---$
$
Owner's Equity
$
Total Liabilities + OE
$
On a balance sheet, assets must equal liabilities and owner’s equity.

Total Assets = Total Liabilities + Owner’s Equity (OE). We will do a simple
exercise to illustrate the concept.
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Mandatory Exercise
Say a clothing designer owns its work tables and chairs (worth $4000.00), three
professional type sewing machines (worth $15,000), and has $15,000 in cash. There is also
$10,000 in inventory. In other words, the design business has a total capital equipment
investment of $4,000 + $15,000 = $19,000, plus the $15,000 in cash. The designer also took
out a $10,000 long-term loan to buy the professional overlocking sewing machines. The
total assets are $44,000. However there are long-term liabilities of $10,000 (loan for the
overlocking machines) and a short-term loan for $10,000, which leaves $24,000 of owner’s
equity (OE).
Total Liabilities + OE = $44,000. Short and long term liabilities equaling $20,000 plus
$24,000 in OE. Total Assets equal Total Liabilities + Owner’s Equity.
Fill out the Balance Sheet provided. Email to me, do not post to Discussion Forum.
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