Accrual Basis Balance Sheet

Accrual Basis Balance Sheet

Key Things To Know

Accounts on the Balance Sheet Related to Revenues

Accounts Receivable (Asset)
The customer is expected to pay the company after goods or services are provided to the customer. Customers owe the company.

Unearned Revenue or Deferred Revenue (liability)
Cash the customer pays to the company before the goods or services are provided to the customer. The company owes the customer until the good or service is provided.

Accounts on the Balance Sheet Related to Expenses

Prepaid
The company pays cash before the service is provided to the company.

xxxxxx Payable
The company will pay for services after the service is provided to the company in a later period. (salaries, wages, interest, taxes, etc.)

“xxxxx payables” will get their own line item if the total amount owed is large enough to matter to the user of the balance sheet. If the amount is not large enough to matter it will be included in accrued expenses.

Accrued Expenses or Accrued Liability:
Accrued means “not yet paid.”
The company will pay for services after the services are provided to the company.

The accrued expenses or accrued liabilities account generally consists of liabilities owed in the course of business that are not invoiced with terms (accounts payable are bills that come in the mail)

There Are Always 2 Things when there is a revenue or an expense
(A transaction is an exchange of one thing for another)

Revenue:

2 Things: 1st the revenue and then decide which balance sheet account changes; cash or accounts receivable or unearned revenue

1) Goods and services are provided to the customer and this creates the revenue.

2) The revenue is earned even if the company is not paid in the same period the revenue is earned.

3) Along with the revenue comes either more cash, more accounts receivable, or less unearned revenue.

Expense:

2 Things: 1st the expense and then, decide which balance sheet account changes; less asset or less cash or more liability

1) The company is provided a service that must be paid for, or an asset is used, and this creates the expense.

2) The expense is incurred even if the company does not pay in the same period as the expense.

3) Along with the expense comes either less prepaid asset, less cash or more liability

The balance sheet reports if cash occurs in a different period.

Prepaid expense or unearned revenue indicates cash was exchanged in a previous period.

Accounts receivable or xxxxxx payable or accrued liability indicates the cash will be exchanged in a future period.

Assets that are commonly used and the associated expense for the period reported on the income statement are:

Asset: Prepaid Expenses
A service (rent or insurance) is paid for before the service is provided.

Expense: Rent or Insurance
Time passes and the asset is used up and is no longer prepaid
_____________________________________

Asset: Supplies
Supplies are purchased to be used up in the daily course of doing business.

Expense: Supplies Expense
Supplies are used up and the company no longer has the asset.
____________________________________

Asset: Inventory
Goods bought solely for the purpose of providing to customers.

Expense: Cost of Goods Sold
The inventory is provided to customers and is no longer owned by the company.
____________________________________

Asset: Property, Plant & Equipment
Physical assets used for more than one year to produce revenue.

Expense: Depreciation Expense
The total cost of using the asset is spread out over the total time the asset is used to produce revenue.

Cost – RV / Estimated Useful Life (in years) = Depreciation Expense
____________________________________

Asset: Intangibles
Non-physical assets used for more than one year to produce revenues.
.
Expense: Amortization Expense
The total cost of using the asset is spread out over the total time the asset is used.

Cost / Estimated Life in Years = Amortization Expense

Owner’s Equity:

Common Stock:
Money received from investors in exchange for ownership.
Common stock is reported at par value, the amount the shareholders are legally liable to pay if the company goes bankrupt.
Par value is typically set at a very small amount.

Additional Paid in Capital, or Capital in Excess of, or Contributed Capital
Contributed capital is the difference in the total amount received in exchange for ownership and par value.

Both accounts are used when cash is contributed by owners.
The two accounts added together equal the total amount received from owners.

Example:
The owner contributes $10,000 and receives 10,000 shares of common stock in return. Each share of stock has a par value of $0.10.

The company will report on the balance sheet:

Retained Earnings:
Cumulative at the beginning of the year
+ Current year profits or losses reported on the income statement
– Dividends to shareholders
= Cumulative at the end of the year (reported on the balance sheet)

Treasury Stock:
The amount (cost) the company pays to purchase their own stock.

Companies often buy their own stock to

• show faith in their company
• to grant to employees at a later date.
• to increase the value of each outstanding share

Accumulated Other Comprehensive Income:
Gains or losses incurred by the company that are not reported on the income statement and are taken directly to owner’s equity.
Limited to a few items

The Balance Sheet: As of a particular point in time

(Accounts in italics are related to cash paid or received in a different period than
revenues or expenses are reported on the income statement.)