balance sheet Flashcards
Balance Sheet
The balance sheet displays the company’s total assets and how the assets are financed, either through either debt or equity. It can also be referred to as a statement of net worth or a statement of financial position. The balance sheet is based on the fundamental equation: Assets = Liabilities + Equity.
how to represent balance sheet
the balance sheet is divided into two sides (or sections). The left side of the balance sheet outlines all of a company’s assets. On the right side, the balance sheet outlines the company’s liabilities and shareholders’ equity.
what are the Current Assets
Cash and Equivalents,Accounts Receivable,Inventory
Inventory
nventory includes amounts for raw materials, work-in-progress goods, and finished goods. The company uses this account when it reports sales of goods, generally under cost of goods sold in the income statement.
Accounts Receivable
This account includes the balance of all sales revenue still on credit, net of any allowances for doubtful accounts (which generates a bad debt expense). As companies recover accounts receivables, this account decreases, and cash increases by the same amount.
Cash and Equivalents
The most liquid of all assets, cash, appears on the first line of the balance sheet. Cash Equivalents are also lumped under this line item and include assets that have short-term maturities under three months or assets that the company can liquidate on short notice, such as marketable securities. Companies will generally disclose what equivalents it includes in the footnotes to the balance sheet.
what are the Non-Current Assets
Plant, Property, and Equipment (PP&E), Intangible Assets
Plant, Property, and Equipment (PP&E)
Property, Plant, and Equipment (also known as PP&E) capture the company’s tangible fixed assets. The line item is a noted net of accumulated depreciation. Some companies will class out their PP&E by the different types of assets, such as Land, buildings, and various types of Equipment. All PP&E is depreciable except for Land.
Intangible Assets
This line item includes all of the company’s intangible fixed assets, which may or may not be identifiable. Identifiable intangible assets include patents, licenses, and secret formulas. Unidentifiable intangible assets include brand and goodwill.
what are the components of Current Liabilities
Accounts Payable, Current Debt/Notes Payable, Current Portion of Long-Term Debt
Accounts Payable
Accounts Payables, or AP, is the amount a company owes suppliers for items or services purchased on credit. As the company pays off its AP, it decreases along with an equal amount decrease to the cash account.
Current Debt/Notes Payable
Includes non-AP obligations that are due within one year’s time or within one operating cycle for the company (whichever is longest). Notes payable may also have a long-term version, which includes notes with a maturity of more than one year.
Current Portion of Long-Term Debt
This account may or may not be lumped together with the above account, Current Debt. While they may seem similar, the current portion of long-term debt is specifically the portion due within this year of a piece of debt that has a maturity of more than one year. For example, if a company takes on a bank loan to be paid off in 5-years, this account will include the portion of that loan due in the next year.
Shareholders’ Equity
Share Capital, Retained Earnings
Share Capital
This is the value of funds that shareholders have invested in the company. When a company is first formed, shareholders will typically put in cash. For example, an investor starts a company and seeds it with $10M. Cash (an asset) rises by $10M, and Share Capital (an equity account) rises by $10M, balancing out the balance sheet.
