Balance Sheet

Balance Sheet

- shows financial position of a business at the close of business on a specific date
- financial record of firm from its 1st day of business through the end of the business day listed.

What A BALANCE SHEET shows

Assets - what the firm owns
Liabilities - what it owes
Net Worth - what it is worth on paper
Inventory is only accurate if physical inventory if conducted and that value is put on the balance sheet, adjusting for shrinkage if necessary.

Assets

something of economic value that DIRECTLY or INDIRECTLY helps a business provide GOODS and/or SERVICES to customers.

Direct Asset

Inventory

Indirect Asset

Computer, Store Fixtures

Assets as Liquid Capital

Cash and A/R
Cash=Cash on Hand or in Checking account
A/R = $$ owed by 3rd parties and charge accts, NOT CC sales

Assets as Prepaid Expenses

Insurance and Rent
- become expenses as they are used

Tangible Assets

- Have physical form and substance
Inventory, Land, Fixtures, Equipment, Buildings, Supplies

Intangible Assets

- NO physical form, must have measurable value to be on financial statement
Good Credit Rating, Goodwill (value of business), Established relationships, Skilled employees, patents

CURRENT Assets

Generally Cash assets or Assets that will become cash within ONE year
E.g. Cash, A/R, Inventory. Could be short-term investments as well.

PREPAID expenses

Sometimes listed as LONG TERM asset
RAREly as Current Assets.

LONG TERM Assets

- Take a long time to turn into cash
FIXED ASSETS: property, buildings, equipment, fixtures
INVESTMENTS: purchase securities (primarily) and hold as a long term investment
INTANGIBLE ASSETS: rarely included in balance sheet BUT would be considered long te

LIABILITIES

obligations firm has to persons or organizations.
E.g. Money owed to suppliers (A/P), employees (wages payable), financial institutions (notes payable and interest payable) and government (taxes payable)

Unearned Revenue

getting paid for a service before supplying those goods or services.
- Liability until services/goods are delivered.

CURRENT liabilities

must be paid within ONE year
E.g. A/P, short term notes payable

LONG-TERM liabilities

due more than ONE year from the balance sheet date

Stockholder Equity" OR "Shareholders Equity

OWNERS EQUITY = NET WORTH
OE: value or firm to the owner(s)

*Accounting Equation

ASSETS = LIABILITIES + OWNERS EQUITY

OE = NW = Stockholders Equity has 2 parts

1. CONTRIBUTED CAPITAL: amount and individual has contributed to the firm in exchange for a complete or part ownership.
2. RETAINED EARNINGS: portion of profits which has not been distributed to the owners in the form of dividends.
- kept in business to f

Double Entry Accounting

- Accounting transactions are made daily in a journal
- Daily 'journal entries' are made in the 'general journal'
- used when dealing with the accounting equation.
ASSETS = LIABILITES + Owners EQUITY
- must always stay in balance

T" Accounts

Left side = debits
Right side = credits

2 Rules with T accounts
Pg. 314

1. INCREASE in ASSETS are DEBITED
DECREASES in ASSETS are CREDITED
2. INCREASES in LIABILITY and O.Equity are CREDITED
DECREASES in LIABILITY and O.Equity are DEBITED

Owners Equity Sub Accounts for Sole Proprietorship

Capital Account, Withdrawals Account, Revenue Account, Expenses Account

CAPITAL account

Original Investment ($$ coming in)
Additional Investments
Debit = DECREASE
Credit = INCREASE

WITHDRAWALS account

withdrawals for personal use ($$ going out)
Owners equity is DECREASED (Debit)
Withdrawals account is INCREASED (Debit)
Debit = INCREASE
Credit = DECREASE

REVENUE account

Owners Equity = INCREASED ($$ coming in)
Revenue Account = INCREASED (credit)
Debit = DECREASE
Credit = INCREASE

EXPENSE account

Owners Equity = DECREASED ($$ going out)
- decreases when expenses are incurred
Expense Account = INCREASED (debit)
- show
Debit = INCREASE
Credit = DECREASE

Trial Balance

- Determine balance of each separate account
Add Debit, Add Credit, and subtract smaller from larger. Larger debit amount = debit balance. Larger credit side = credit balance.
- Add debit balances AND credit balance and compart
- List DEBIT balance in one

General Balances

Assets Acct= Debit balance (INCREASE)
Liability Acct = Credit balance (INCREASE- owe more)
Owners Equity Accts
- Capital = Credit balance (INCREASE)
- Withdrawals = Debit balance (DECREASE)
- Revenue = Credit balance (INCREASE)
- Expense = Debit balance (