Summary Notes: A2--Balance Sheet
1
The Balance Sheet (The Statement of Financial Position) records information on:
Assets—the value of things that are owned
Liabilities—the value of things that are owed
The balance sheet tells us what the company is worth on a particular date (assuming we do a good job
valuing assets and liabilities).
The Accounting Equation always holds:
Liabilities + Owners’ Equity = Assets
Balance sheet example (thousands):
J&M, Inc. BALANCE SHEET December 31
2015 2014 Changes
Assets
Current assets:
Cash and cash equivalents
Short-term marketable sec.
Accounts receivable
Inventory
Prepaid expenses
Deferred charges
Total current assets
$ 8,500
3,000
23,700
37,700
2,000
2,500
77,400
$ 6,100
5,000
19,500
39,800
1,500
3,000
74,900
+ $2,400
– 2,000
+ 4,200
– 2,100
500
– 500
+ 2,500
Long-term Assets:
Plant and equipment
Less accumulated depreciation
Total assets
154,000
(70,000)
$161,400
145,000
(50,000)
$169,900
+ 9,000
+ 20,000
– 8,500
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Wages payable
Accrued taxes
Total current liabilities
10,000
16,000
2,000
28,000
26,000
15,000
3,500
44,500
– 16,000
+ 1,000
– 1,500
– 16,500
Other liabilities
Long-term debt
Total liabilities
30,000
$58,000
32,000
$76,500
– 2,000
– 18,500
Shareholders’ equity
Preferred stock, 6%, $100 par value
Common stock, $4 par value (10,000 shares)
Additional paid-in capital
Retained earnings
Total owners’ equity
Total liabilities and equity
10,000
40,000
11,000
42,400
103,400
$161,400
10,000
40,000
11,000
32,400
93,400
$169,900
0
0
0
+ 10,000
+ 10,000
– 8,500
Notes about Assets:
• Assets are arranged in order of liquidity--cash is listed first
Summary Notes: A2--Balance Sheet
2
o Liquidity = easy to convert to cash ($)
• Current assets = convertible to cash within a year
o Firms with good LT assets but lack of cash have a “cash-flow” problem
• Short-term marketable securities--bonds that can be easily sold-like US govt. debt.
• Accounts receivable—owed to the firm by customers (30- or 45-day accounts receivable)
• Inventory--$ value invested in raw materials, work in process and finished goods
o Sometimes tricky to value--Last year’s unsold holiday sweaters? Gold stock of a jeweler?
• Prepaid expenses (e.g.: insurance policy or rent)
• Deferred charges (prepaid expenses for intangible asset like goodwill or startup costs in the pre-
operating period).
• Long-term Assets = harder to convert to cash
o Purchase price of plant and equipment
• Depreciation—With exception of land, an allowance is made for the “using up” of assets
• Total Assets = Current + LT Assets
Notes about Liabilities:
• Current liabilities must be paid in the next year
o Pay suppliers for raw.
1. Summary Notes: A2--Balance Sheet
1
The Balance Sheet (The Statement of Financial Position)
records information on:
Assets—the value of things that are owned
Liabilities—the value of things that are owed
The balance sheet tells us what the company is worth on a
particular date (assuming we do a good job
valuing assets and liabilities).
The Accounting Equation always holds:
Liabilities + Owners’ Equity = Assets
Balance sheet example (thousands):
J&M, Inc. BALANCE SHEET December 31
2015 2014 Changes
Assets
Current assets:
Cash and cash equivalents
Short-term marketable sec.
Accounts receivable
Inventory
Prepaid expenses
Deferred charges
Total current assets
4. Other liabilities
Long-term debt
Total liabilities
30,000
$58,000
32,000
$76,500
– 2,000
– 18,500
Shareholders’ equity
Preferred stock, 6%, $100 par value
Common stock, $4 par value (10,000 shares)
Additional paid-in capital
Retained earnings
Total owners’ equity
Total liabilities and equity
10,000
40,000
11,000
42,400
103,400
$161,400
5. 10,000
40,000
11,000
32,400
93,400
$169,900
0
0
0
+ 10,000
+ 10,000
– 8,500
Notes about Assets:
• Assets are arranged in order of liquidity--cash is listed first
Summary Notes: A2--Balance Sheet
2
o Liquidity = easy to convert to cash ($)
• Current assets = convertible to cash within a year
o Firms with good LT assets but lack of cash have a “cash-flow”
problem
• Short-term marketable securities--bonds that can be easily
sold-like US govt. debt.
6. • Accounts receivable—owed to the firm by customers (30- or
45-day accounts receivable)
• Inventory--$ value invested in raw materials, work in process
and finished goods
o Sometimes tricky to value--Last year’s unsold holiday
sweaters? Gold stock of a jeweler?
• Prepaid expenses (e.g.: insurance policy or rent)
• Deferred charges (prepaid expenses for intangible asset like
goodwill or startup costs in the pre-
operating period).
• Long-term Assets = harder to convert to cash
o Purchase price of plant and equipment
• Depreciation—With exception of land, an allowance is made
for the “using up” of assets
• Total Assets = Current + LT Assets
Notes about Liabilities:
• Current liabilities must be paid in the next year
o Pay suppliers for raw materials, workers their wages, and
government assessed taxes
• Long term liabilities—not payable within a year
o Bonds, mortgages and long-term notes
Working capital = current assets – current liabilities
• In 2015, working capital = $77,400,000 - $28,000,000 =
$49,400,000
• This company has enough short-term assets to cover its short-
term debts
7. Notes about shareholders’ equity:
• Common stock—measured at par value
o Par value--no relation to market value of a stock/set very low
(e.g.: 10c/share)
• Preferred stock—fixed dividend, paid back ahead of common
stock owners if company fails (but
behind bondholders).
• Paid-in capital—money received from sale of shares to public
over and above the par value.
o Example: A company sells 1,000 shares for $50 a share. The
par value is $0.10/share.
Paid in capital = ($50.00 - $0.10) x 1,000 = $49,900.
• Treasury stock—Unsold shares retained by company.
Sometimes corporations also buy back
their own stock, which then becomes treasury stock.
• Retained earnings = Cumulative net income since inception –
total dividends paid to
shareholders (See Summary Notes A3)
Notice: Accounting equation satisfied in the sample balance
sheet for 2015:
• Liabilities + Shareholder Equity = Assets = $161,400,000
Book Value of company = Total equity/# of shareholders (from
balance sheet)
= $103,400,000/10,000,000 = $10.34
8. • Book value doesn’t have to be reflected in share price quoted
on stock exchange today:
o Stock price higher than book value when investors anticipate
future growth
Criterion 1
A - 4 - Mastery
Plan included a comprehensive review of the desired leadership
styles, leadership traits, and communication
expectations.Criterion 2
A - 4 - Mastery
Accurately made the connection of how leadership skills
influence organizational effectiveness; included details and/or
examples.Criterion 3
A - 4 - Mastery
Provided specific examples of how the benefits of
organizational effectiveness can affect the workplace and how it
is impacted by a lack of formal training processes.Criterion 4
A - 4 - Mastery
Submitted a properly formatted formal email; used a
professional tone.