Balance sheet assets

An income statement such as the one shown in Table 9-16 is used to obtain the profit or loss for a given period. The debit and credit balances of all the accounts that do not represent expenditure or income for a given accounting period are entered as assets and liabilities in a balance sheet such as that shown in Table 9-17. 

There is no rigid format for either the income statement or the balance sheet. Tables 9-16 and 9-17 show common layouts for the income statement and balance sheet respectively, but these are not the only forms. For example, vertical balance sheets, with the assets listed above the liabilities and equity, are also popular. 

Concept 3. Going concern means that the accounting is based on the premise that the business will continue indefinitely. It is most unlikely that the values of the assets shown in the balance sheet are what the assets would realize if sold. No attempt is made in normal accounting to measure the value of the business to a potential buyer. 

Concept 4. Cost means that the assets are normally shown in the balance sheet at cost price together with their subsequent depreciation. Some assets such as land may be considerably more v uable than when originally purchased, but no indication of this is given in the balance sheet. However, some governments now require a note giving the current estimated value of the laud. 

A balance sheet includes items that are not regarded as assets or liabihties in normal language, such as expenditures carried forward and accumulated profits. 

Accountants regard assets as resources that have not yet been used up. Assets are normally shown on the balance sheet at cost minus accumulated depreciation. In this sense, the depreciation charge for an accounting period is the means of converting a part of an asset into a current expenditure that is then listed as an expense in the income statement. 

Let us consider the simplified balance-sheet or position statement shown in Table 9-21. Essentially, total assets are related to habilities and stockholders equity by... 

Total assets 100,000 Total liabilities and stockholders equity 100,000 Y Company balance sheet... 

Stockholders equity in a company is made up of the capital contributed by the stockholders and the capital generated from retained earnings. The presence of retained earnings on a balance sheet, as shown in Table 9-23, does not necessarily mean that they are matched by an equal amount of cash. In fact, there may be little or no cash available. The retained earnings shown on a balance sheet may be largely fictitious. For example, the assets on a balance sheet may be worth less than shown by at least the value of the retained earnings. 

Management and Cost Aeeounting In any given time period, cost may be divided into expired and unexpired cost. An expired cost is an expense an unexpired cost is an asset. This division is the basis for income statements and balance sheets. 

Book values of fixed assets are determined by the balance-sheet annual depreciation charges Abd, which do not affect working capital. Although the accounting gain or loss on the sale of a fixed asset is based on its book value, working capital is not affec ted by depreciation assessments. 

The total of capital and reserves is the amount by which the assets can fall below the balance sheet value without depleting the amount available for creditors. A high ratio will reduce borrowing capacity. 

For corporations the same reasoning applies. To offer the prime interest rate the lender must be sure he can get his capital back plus interest. This means that the borrower s total assets must be considerably greater than the current liabilities and debts. Consider the simplified balance sheet given in Table 10-13. By current assets is meant cash and everything involved in working capital-feedstocks, unsold product, plus all the product that has been shipped but for which no payment has... 

If Ihe assets for the company whose balance sheet is given in Table 10-13 can only be sold at half their listed value, then after all the current liabilities and bonds have been paid off, there would be nothing left for the stockholders. In fact, some of the bondholders might not be totally reimbursed, since it would cost something to liquidate the company s assets. This company could not get a loan at prime interest rates. It would have a better chance of getting a good interest rate if its balance sheet resembled that given in Table 10-14. 

Figure B.8 illustrates the balance sheet. A balance sheet is a snapshot of the assets and liabilities at one point in time. It tells nothing about the transactions and adjustments that led to the numbers presented in the statement. A comparison of balance sheets over time can help indicate earnings.

The reconciliation between the cash flow statement and the income and expense statement is as follows. Start with the 40,000 from the last line in the cash flow statement, subtract 20,000 for the depreciation expense, and add back the 30,000 mortgage loan principal payment (not an allowed expense). The result is the net after-tax earnings. Figure B.ll is a set of statements from a small oil company. The statement of operations lists revenue and expenses, whereas the balance sheet lists various assets, liabilities, and stockholders equity ( net worth ). So-called capital items such as buildings, equipment, oil and gas property, and various intangibles are assets. Operating costs are deductions from revenues for operations not including expenditures for capital items. 

C. Balance sheet current and fixed assets, current and long-term liabilities, net worth... 

Balance Sheet The balance sheet represents an accounting view of the financial status of a company on a particular date. Table 9-3 is an example of a balance sheet for a company. The date frequently used by corporations is December 31 of any given year, although some companies are now using June 30 or September 30 as the closing date. It is as if the company s operation were frozen in time on that date. The term consolidated means that all the balance sheet and income statement data include information from the parent as well as subsidiary operations. The balance sheet consists of two parts assets are the items that the company owns, and liabilities and stockholders equity are what the... 

Balance sheet This is an accounting, historical tabulation of assets, liabilities, and stockholders equity for a company. The assets must equal the liabilities plus the stockholders equity. 

On a balance sheet, the sum of the total liabilities and the stockholders equity must equal the total assets, hence the term balance sheet. Comparing balance sheets for successive years, one can follow changes in various items that will indicate how well the company manages its assets and meets its obligations. 

The accounting definition of woridng capital is total current assets minus total current liabilities. This information can be found from the balance sheet. Current assets consist chiefly of cash, marketable securities, accounts receivable, and inventories current liabilities include accounts payable, short-term debts, and the part of the long-term debt currently due. The accounting definition is in terms of the entire company. 

Sources of finance for company acquisitions as mentioned above can be from reserves or maybe taken a senior or subordinated debt. Alternatively a bond may be issued with various characteristics offering an annuity, a balloon payment or a combination of the two. A variety of convertible structures have been utilized for this purpose as asset sales and the use of the target s balance sheet. There has also been a place for royalty transactions where the future-value of product cash flows are securitized to provide capital in the near term to achieve a company acquisition. 

The operational liabilities and assets of the company should include all contractual, legal and financial commitments both on and off the balance sheet such as ... 

Table 15-2 shows the balance sheet for Whole Health Partners Pharmacies (WHP). The balance sheet provides a snapshot of an organizations assets, liabilities, and shareholder equity at any particular point in time. While organizations generally prepare a balance sheet at the end of a fiscal year, they may prepare this statement at any point in time (e.g., at the end of a month or a quarter). As discussed in the introduction, the balance sheets total assets must equal the total liabilities plus shareholders equity at all times. 

As of November 1, year 0, WHP had not yet started operations. However, WHP had acquired all the assets it needed to begin operations. When we examine WHP s balance sheet after 1 year of operations (year 1), we notice changes in assets, liabilities, and shareholders equity. WHP s goal, like that of most businesses, is to increase its assets through profitable operations throughout the fiscal year. Assuming that WHP is able to keep its liabilities unchanged, an increase in assets would result in an increase in shareholders equity, and that will make for one happy pharmacist owner ... 

The balance sheet in Table 15-2 shows the values of assets, liabilities, and shareholders equity, but because it is only a snapshot, it does not reveal much about what caused these values to change over the course of the year. The balance sheet also does not tell us how... 

Smaller and more frequent auctions are likely to encourage participation by smaller bidders. For example, firms who wish to purchase at auction rather than on the secondary market may not have a large enough line of credit to purchase 5 years worth of permits in advance. This is a substantial asset to hold on the balance sheet and one-off auctions might deter small bidders without deep pockets . These bidders would still trade on the secondary market, but the auctions themselves would be less competitive. 

The balance sheet, as its name implies, shows the equivalence between the assets of the company (i.e. what it owns), and the liabilities (i.e. what it owes), all calculated on the day of the balance. The total assets must equal the total liabilities. 

The capital needed for a new major project will come from two sources inside the company and outside it. The internal resources are the owners funds, and this money exists in the current assets part of the balance sheet, from which it can be drawn. New capital can be raised by the sale of already issued shares held by the company, or by the sale of bonds, or by the issuance of new shares. 

Fixed assets (excluding land) used by a company usually decrease in value over time, even when properly maintained. This can be due to product obsolescence or simply wearing out (with an ultimate need to be replaced). If an asset life is less than a year, the expenditure on it is included in the profit/loss account as a cost. If, however, its life is greater than 1 year, then a way has to be found to adjust both profit/loss account and balance sheet to give recognition to the actual life of the asset. 

The initial cost of the asset is shown as a fixed asset in the balance sheet. In the profit/loss account, the decrease in value is shown each year by allowing a proportion of the original value as a notional operating cost, the depreciation allowance . A correspondingly reduced asset value is then shown in the end-of-year balance sheet, with an equivalent increase in the cash assets (so that the total assets are not changed). 

A further complication occurs for assets that increase in value with time, such as land, or mineral resources, or even buildings. Revaluation of assets requires the efforts of skilled accountants, with matching balance sheet entries under fixed assets and capital reserves.)... 

A balance sheet for an industrial concern is based on Eq. (1) or (2) and shows the financial condition at any given date. The amount of detail included varies depending on the purpose. Consolidated balance sheets based on the last day of the fiscal year are included in the annual report of a corporation. These reports are intended for distribution to stockholders, and the balance sheets present the pertinent information without listing each individual asset and equity in detail. 

Modem balance sheets often use the general term liabilities in place of equities. Current liabilities are grouped together and include all liabilities such as accounts payable, debts, and tax accruals due within 12 months of the balance-sheet date. The net working capital of a company can be obtained directly from the balance sheet as the difference between current assets and current liabilities. Other liabilities, such as long-term debts, deferred credits, and reserves are listed under separate headings. Proprietorship, stockholders equity, or capital stock and surplus complete the record on the equity (or liability) side of the balance sheet. 

Consolidated balance sheets are ordinarily presented with assets listed on the left and liabilities, including proprietorship, listed on the right. As indicated in Eq. (1), the total value of the assets must equal the total value of the equities. A typical balance sheet of this type is presented in Fig. 5-2. 

Balance sheets and income statements are summarizing records showing the important relationships among assets, liabilities, income, and costs at one particular time or over a period of time. Some method must be used for recording the day-to-day events. This is accomplished by the use of journals and ledgers. 

Prepare a balance sheet applicable at the date when the X Corporation had the following assets and equities ... 

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