Balance Sheet
Key Things To Know
Financial Accounting
Balance Sheet
Key Things To Know
Accounts Receivable:
Amounts customers owe the company for goods or services provided; normally collected in 30 to 90 days
Inventory:
Items held only for sale to the customer
Prepaid Expenses:
Paid in advance before the service is provided; gives future benefit (rent, insurance)
Supplies:
Items that are used up in day to day operations
Notes Receivable:
Amounts owed to the company; normally interest is charged and the note is repaid in longer than 3 months
Investments:
The company takes their excess cash and invests it in stocks or bonds to earn a return. Investments can be short term or long term
Property/Plant/Equipment:
Assets used long-term to generate revenues; they have physical substance (Buildings, Equipment, Autos, Land, Computers)
– Accumulated Depreciation:
The total amount for all prior years (cumulative) of depreciation expense for all prior periods. This is a contra account subtracted from plant, and equipment
Intangible Assets:
No physical substance – used long-term to generate revenues. The company has the exclusive right to do something; Includes trademarks, copyrights, patents, franchises, goodwill
Cash paid to purchase a company
less Fair market value of net assets acquired
= Goodwill
Accounts Payable:
Amounts owed to suppliers, normally paid in 30-60 days
Suppliers are those who provide inventory or goods and services over and over again
Accrued Expense:
Both of these are expenses that have not yet been paid
Accrued Liabilities:
that the company owes – examples are: employee taxes, legal, advertising, bonuses, retirement plans
_________ Payable:
Expenses incurred that have not yet been paid
(Salaries, Rent, Interest, Taxes)
If an amount is large enough, it gets its own line. If it is not large enough it will be included in accrued expenses.
Unearned Revenues:
Cash received from customers before the good or service is provided. The company owes the customer a good/service
Current Maturities of Long Term Debt:
The portion of long –term debt that will be repaid within 1 year
L/T Notes Payable and Long-term Debt:
Amounts owed to banks and other financing companies that will be paid later than one year from now
Amounts due within a year are reported as current maturities of long term debt
Bonds Payable:
Amounts borrowed from investors; normally long-term
Common Stock or Contributed Capital:
Funds received from investors in exchange for ownership – common stock is reported at par value
Additional Paid in Capital:
Amounts over and above par raised from investors from the sale of stock (ownership)
Retained Earnings:
Total of all (cumulative) profits and losses less dividends paid to owners
Treasury Stock:
The company buys and holds its own stock
Operating cycle:
the time it takes a company to spend cash to do business and get the cash back again (buy inventory, pay expenses, sell to the customer and collect from the customer). Usually less than one year.
The balance sheet is listed in the order of liquidity – how soon it will impact cash
Current means the cash is expected to be collected or paid in 1 year or less
Long term/Non-current means the cash is expected to be collected or paid in longer than 1 year
The balance sheet is reported at historical cost; fair market value on the date of the transaction (buy the asset or borrow money)
Assets are not reported at fair market value – unless fair market value is reliable (investments) or there has been a permanent decrease in value
Internally generated goodwill is not reported on the balance sheet (i.e. a good management team, a good location, name-brand recognition developed over time.)
It is too difficult to determine a reliable value so it is not reported.
The Format of the Balance Sheet:
Assets: Liabilities:
Current: Current:
Cash Accounts Payable
Accounts Receivable Accrued Expenses (Liabilities)
Inventory Unearned Revenues
Prepaid Expenses “_______” Payables
Short-term Investments Income Taxes Payable
Short-term Notes Receivable Short-term Notes Payable
Supplies Current Portion of Long-term Debt
Total Current Assets Total Current Liabilities
Long-term Investments Bonds Payable
Long-term Notes Receivable Long-term Debt
Long term Notes Payable
Total Liabilities
Property/Plant/Equipment (P/P/E):
Land
Building
Equipment
Less Accumulated Depreciation
Net P/P/E Stockholder’s Equity:
Intangible Assets Common Stock
Goodwill Additional Paid in Capital
Patents, net Retained Earnings
Trademarks, net less Treasury Stock
Copyrights, net
Total Intangible Assets Total Stockholder’s Equity
Other Assets
Total Assets must = Total Liabilities & Stockholder’s Equity