Balance Sheet
Practice As You Learn
Introduction to Accounting
Balance Sheet
Practice As You Learn
Know the definitions of the common assets, liabilities, and owner’s equity accounts and understand what each represents. See Key Things to Know.
You will be required to classify items that go on the balance sheet:
1) Determine the common name of the item
2) Determine current or noncurrent
3) Determine what section of the balance sheet the item is reported
You will be required to prepare the balance sheet in the proper format and order of liquidity. Memorize the format of the key categories classified balance sheet:
| Assets: | Liabilities: |
| Total Current Assets | Total Current Liabilities |
| Long-term Liquid Assets | Total Liabilities |
| Property/Plant/Equipment (P/P/E) | |
| Stockholder’s Equity: | |
| Intangible Assets | |
| Total Stockholder’s Equity | |
| Other Assets | |
| Total Assets | = Total Liabilities & Stockholder’s Equity |
Practice Problem 1 – Classification of accounts
For each of the following accounts, indicate where the account is reported on the balance sheet.
CA Current Asset
CL Current Liability
LTA Long-term Asset
LTL Long-term Liability
SE Stockholder’s Equity
N Not Reported on the Balance Sheet
______1. profits and losses kept in the company
______2. items used up in day to day business
______3. land used to produce revenues
______4. amounts paid for the right to use a symbol
______5. cash
______6. amounts paid before services were provided
______7. common stock
______8. long term debt due in less than 1 year
______9. items held to be sold to customers
_____10. amounts owed to investors; due in 10 years
_____11. amounts owed to banks; due in 5 years
_____12. loans to others; due in 6 months
_____13. investments to be sold in 3 months
_____14. amount paid above net assets when purchasing a company
_____15. amount paid for right to publish
Answer
Balance Sheet – Practice Problem 1 – Classification of accounts
SE___1. profits and losses kept in the company retained earnings
CA__ 2. items used up in day to day business supplies
LTA__3. land used to produce revenues part of p/p/e
LTA_ 4. amounts paid for right to use a symbol trademark
CA__ 5. cash
CA__ 6. amounts paid before services were provided prepaid expense
SE___7. common stock
CL___8. long term debt due in less than 1 year current portion of LTD
CA__ 9. items held to be sold to customers inventory
LTL_10. amounts owed to investors; due in 10 years bonds payable
LTL_11. amounts owed to banks, due in 5 years long-term notes payable
CA_ 12. loans to others, due in 6 months short-term notes receivable
CA_ 13. investments to be sold in 3 months short-term investments
LTA_14. amount paid above net assets when purchasing a company goodwill
LTA_15. amount paid for right to publish copyright
The following items were taken from the records of a company as of December 31st.
| Accounts Payable | 47,000 | Long-term Notes Receivable | 35,000 | |
| Patent | 6,000 | Long Term Debt | 150,000 | |
| Building | 215,000 | Short Term Investments | 50,000 | |
| Cash | 15,000 | Short term notes payable | 135,000 | |
| Equipment | 76,000 | Common Stock | 1,000 | |
| Retained Earnings | ?? | Bonds Payable | 75,000 | |
| Prepaid Expenses | 12,000 | Inventory | 79,000 | |
| Goodwill | 28,000 | Supplies | 4,000 | |
| Long term Investments | 100,000 | Copyrights | 8,000 |
Prepare a balance sheet in proper format for the company as of December 31st
Answer
Practice Problem 2 – Prepare a balance sheet
| Assets: | Liabilities: | |||
| Cash | 15,000 | Accounts Payable | 47,000 | |
| Inventory | 79,000 | |||
| Prepaid Expenses | 12,000 | Short-term Notes Payable | 135,000 | |
| Short-term Investments | 50,000 | |||
| Supplies | 4,000 | ______ | ||
| Total Current Assets | 160,000 | Total Current Liabilities | 182,000 | |
| L/T Investments | 100,000 | Bonds Payable | 75,000 | |
| L/T Notes Receivable | 35,000 | Long-term Debt | 150,000 | |
| Total Liabilities | 407,000 | |||
| Property/Plant/Equipment (P/P/E): | ||||
| Buildings | 215,000 | |||
| Equipment | 76,000 | |||
| Total P/P/E: | 291,000 | |||
| Stockholder’s Equity: | ||||
| Intangible Assets | Common Stock | 1,000 | ||
| Goodwill | 28,000 | |||
| Patents | 6,000 | Retained Earnings | 220,000 | |
| Copyrights, | 8,000 | |||
| Total Intangible | 42,000 | Total Stockholder’s Equity | 221,000 | |
|
Total Assets |
628,000 |
|
628,000 |
|
Steps to Take
First: Put the major categories on the balance sheet and subtotals:
Total Current Assets, Total Current Liabilities, P/P/E, Intangible Assets,
Total Liabilities, Total Stockholder’s Equity, Total assets, Total Liabilities
and Stockholder’s Equity.
Second: Put the names in the correct categories and add amounts
Third: Add up all categories
Fourth: Total all assets
Fifth: Total Liabilities & Stockholder’s Equity must be the same number as total assets
Sixth: Subtract Total Liabilities from Total Liabilities and Stockholder’s Equity to get the amount that total Stockholder’s Equity must be.
Seventh: Retained earnings must be 220,000 to make everything balance.