Balance sheet - assets

Question 1

Balance sheet

Answer 1

The balance sheet reports the company’s resources (assets) and how those resources were funded (liabilities and shareholders equity) on a particular date (end of the quarter, end of the year). This contrasts with the income statement which reports a companies revenues, expenses and profitability over a specified period. The fundamental equation in accounting is: Assets = Liabilities + Equity

Question 2

Assets

Answer 2

Assets represent the company’s resources. The qualify as an asset, the following requirements must be met:
• A company must own the resource
• The resource must be of value
• The resource must have a quantifiable, measurable cost

Question 3

Cash

Answer 3

Money held by the company in its bank accounts

Question 4

Cash equivalents

Answer 4

Cash equivalents are extremely liquid assets, i.e. U.S. Treasury bills which will have a term of less than or equal to 90 days

Question 5

Marketable Securities

Answer 5

Debt or equity securities held by the company

Question 6

Accounts Receivable (A/R)

Answer 6

Payment owed to a business by its customers for products and services already delivered to them. A/R represent sales that a company has made on credit; the product has been sold and delivered, but the company has not yet received the cash for the sale

Question 7

Inventories

Answer 7

Inventories represent any unfinished or finished goods that are waiting to be sold, and the direct costs associated with the production of these goods

Question 8

Prepaid expenses

Answer 8

When a company prepays for things like utilities, insurance and rents, the right to the future services become assets.

Question 9

Property, Plant & Equipment (PP&E)

Answer 9

Land, buildings, and machinery used in the manufacture of the company’s services and products

Question 10

Net PP&E

Answer 10

PP&E is reported net of accumulated depreciation on the balance sheet, such that: Net PP&E = Gross PP&E – accumulated depreciation

Question 11

Intangible Assets

Answer 11

Non-physical assets such as patents, trademarks, and goodwill acquired by the company that have value based on the rights belonging to that company

Question 12

Goodwill

Answer 12

For companies that acquire a lot, goodwill is a sizeable asset on the B/S. Goodwill is the amount by which the purchase price for a company exceeds its fair market value (FMV), representing the “intangible” value stemming from the acquired company’s business name, customer relations, employee morale. Goodwill is effectively an accounting plug, created only if the purchase price exceeds the FMV of all the assets acquired.