Thanks to visit codestin.com
Credit goes to www.scribd.com

Scribd
Upload
29 views10 pages

Balance Sheet Fundamentals

The balance sheet describes a company's liquidity and solvency through its assets, liabilities, and owner's equity accounts. It has some limitations as historical costs may not be relevant, and some assets and liabilities are omitted. The major components of the balance sheet are current assets, long-term investments, property/equipment, intangibles, current liabilities, long-term liabilities, and owner's equity accounts. Additional disclosures are also required.

Uploaded by

Vishal kr gupta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPS, PDF, TXT or read online on Scribd
29 views10 pages

Balance Sheet Fundamentals

The balance sheet describes a company's liquidity and solvency through its assets, liabilities, and owner's equity accounts. It has some limitations as historical costs may not be relevant, and some assets and liabilities are omitted. The major components of the balance sheet are current assets, long-term investments, property/equipment, intangibles, current liabilities, long-term liabilities, and owner's equity accounts. Additional disclosures are also required.

Uploaded by

Vishal kr gupta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPS, PDF, TXT or read online on Scribd
You are on page 1/ 10

Balance Sheet Fundamentals

• Balance Sheet describes liquidity and solvency


• Limitations:

- Historical Cost—may be reliable but not relevant

- Judgment for some accounts—management can


influence account balances through judgment

- Omits some “assets” (like value of employee


knowledge)

- Omits some “liabilities” (like operating leases)


Balance Sheet Fundamentals

Balance Sheet elements:

Assets Liabilities
• Current • Current
• Long-Term Investments • Long-Term
• Property, Plant, & Equip.
• Intangible
Owner’s Equity
• Other
• Capital Stock
• Retained Earnings
• Additional Paid-In
Capital
Current Assets

Assets that are:


• Cash or
• Other assets expected to be converted to cash within
one year or one operating cycle

• Cash: recorded at its stated value


• Short-term investments: recorded at fair market value
• Accounts Receivable: recorded at collectible value
• Inventories: recorded at lower of cost or fair market value
• Prepaid Items: recorded at cost
Any restrictions must be disclosed (e.g. minimum deposits).
Long-Term Investments

Investments in:
• Bonds, common stock, long-term notes
• Tangible assets not used for operations
• Special funds (e.g. pension funds)
• Non-consolidated subsidiaries or affiliated companies
Property, Plant, and Equipment (PP&E)

Tangible property used for operations:


• Land
• Buildings
• Machinery
• Furniture
• Tools

Most assets are depreciable (except land).


Intangible Assets

Lack physical substance, but still hold value:


• Patents
• Copyrights
• Franchises
• Trademarks
• Goodwill
• Secret Processes
Current Liabilities

Obligations to be paid off using current assets.


• Covered later in Ch. 13

Current Assets – Current Liabilities = Working Capital


Represents relatively liquid available resources
Long-Term Liabilities

Obligations to be paid off past current operating cycle.


• Covered primarily in Accounting 472
• Bonds Payable
• Notes Payable
• Pension Obligations
Owner’s Equity

Owners’ residual claim to the firm.


• Net Assets – Net Liabilities

• Capital Stock—usually valued at par value

• Additional Paid-In-Capital—excess of amounts paid


above par

• Retained Earnings—undistributed earnings kept


within the firm
Extra Required Balance Sheet Disclosures

• Contingencies: material, uncertain events (e.g.


potential lawsuit liability)

• Accounting Policies: types of depreciation and


inventory methods used, for example

• Contractual Issues: covenants, restrictions, liens

You might also like