Accounting Self Study Guide for Staff of Micro Finance …

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Accounting Study Guide. Lesson 2. Consequently the total claims against the business are equal to the value of. its assets:. Assets. Claims. Sewing machine …

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Accounting - Self Study Guide for Staff of Micro Finance Institutions
LESSON 2
The Balance Sheet
OBJECTIVES The purpose of this lesson is to introduce the Balance Sheet and explain its components: Assets, Liabilities and Equity (Fund Balance; Reserve Balance). The relationship between these components will be explained.
You will develop a basic understanding of how the Balance Sheet is created and how the operations of the organization are recorded on the Balance Sheet. You will also see how the Balance Sheet is “static” in nature. Topics include:
?The Balance Sheet
?The Accounting Equation (ASSETS = LIABILITIES + EQUITY)
?Assets
?Liabilities
?Equity
?Comparative Balance Sheet
The Balance Sheet
An organization or a business has resources which are called assets (for example, cash, equipment, loan portfolio outstanding, etc.). These assets must be funded either by borrowings (debt) or by capital contributed by the owners (or donors). When outside parties finance any portion of an organization’s assets, they acquire claims against the organization equal to (or greater than, depending on the risk) the value of the financing. These are referred to as liabilities. When owners or donors fund part…