Balance Sheet
Reports the company’s resources (assets) and how those resources were funded (liabilities and shareholders) on a particular date (end of quarter, end of year)
Assets =
Liabilities + Equity
To qualify as an asset:
A company must own the resource
The resource must be of value
The resource must have quantifiable, measurable cost.
Types of assets
Cash* - Money held by company in its bank account
Marketable Securities - Dbt or equity securities held by the company
Accounts Recievable - Payment owed to a business by its customers for products and services already delivered to them.
Inventories - any unfinsihed or finished goods that are waiting to be sold, and the direct costs assocaited with the production of these goods.
Prepaid Expenses - Prepaying things like utilities, insurance and rents, the right to the future service become assets
Property, Plant & Equipment (PP&E) - Land, buildings and machinery used in the manufacture of the company ‘s service and products
Intangible Assets & Goodwill - Non-physical assets such as patents, trademarks and goodwill acquired by the company that have value based on the rights belonging to the company
Liabilities represent
what the company owes to others:
1. They must be measurable
2. Their occurrence is probable.
Equity represents
sources of funds through:
1. Equity investment (cash received in exchange for a percentage of ownership)
2. Retained earnings (Represent accumulated profits kept for internal use, acting as a “rainy day fund” or growth capital.)
Common Liabilities
Accounts Payable - Company’s obligations to suppliers for products already purchased from them, but which have not been paid.
Accrued Expenses - Expenses like employee compensation that the company has incurred, but for which it has not paid yet. (example - year end bonus)
Short-term Debt - Debt due within 12 months
Long-term Debt - Debt whose maturity exceeds 12 months
Common Equities
Preferred Stock - Stock that has special rights and takes priority over common stock
Common Stock - Represents capital received by a company when it issues shares
Treasury Stock - Common stock that has been issued and then reacquired by a company
Retained Earnings - Total company earnings/losses since its inception less all dividends (study more)
Credit - Entry on the right side
Source of funds - where’d the money came from - LIABILITIES “How did we pay for it / who financed it”
Example - When we borrowed $50k for the lemonade stand, that $50k was a credit.
The $100k in cash we put in was also a credit. Totaling $150k in credit
Assets are presented in descending order of liquidity (can be sold quicker than others)
- Cash
- Accounts receivable
-Inventory - PP&E
Intanglible assets
As long as assets can be converted into cash within 12 months =
They are considered “current” and classifed as such on the balance sheet.
Cash, accounts receivable, inventories and prepaid expenses make up this category.
What is never a current asset
PP&E
Where are there totals on a balance sheet
Under current assets, PP&E (PP&E->Less accumulated depreciation -> PP&E net)
Liabilities are presented in what order?
In the order of when they are to be paid.
Examples of “Current liabilities”
Due within 12 months:
short term debts
accounts payable
accounts liabilities
accrued income taxes
long-term debt due within one year
obligations under cap
