1st Bac - Basic Balance Sheet/Financial Statements

 

 

  Basic Balance Sheet

The last step in the accounting process is the elaboration of a report that gives information about the financial situation of a business. In accounting this report is known as balance sheet.

Characteristics of the Balance Sheet

A balance sheet is a report that explains, for a period of time, the financial situation of a business taking into account the investment (assets), the debt (liabilities) and the resources given by the entrepreneur (equity).

Assets = Liabilities + Equity


Importance of the Balance Sheet

The information found on the balance sheet helps the company at the moment of identifying its strengths and weaknesses. Also, it helps to look at the progress the company has had.


Process of Elaborating a Balance Sheet

1. Determine the Reporting Date and Period

A balance sheet is meant to depict the total assets, liabilities, and shareholders’ equity of a company on a specific date, typically referred to as the reporting date. Often, the reporting date will be the final day of the reporting period.

Most companies, especially publicly traded ones, will report on a quarterly basis. When this is the case, the reporting date will most usually fall on the final day of the quarter:

  • Q1: March 31
  • Q2: June 30
  • Q3: September 30
  • Q4: December 31

2. Identify Your Assets

Assets will often be split into the following line items:

  • Current Assets:
    • Cash and cash equivalents
    • Short-term marketable securities
    • Accounts receivable
    • Inventory
    • Other current assets
  • Non-current Assets:
    • Long-term marketable securities
    • Property
    • Goodwill
    • Intangible assets
    • Other non-current assets

Current and non-current assets should both be subtotaled, and then totaled together.

3. Identify Your Liabilities

  • Current Liabilities:
    • Accounts payable
    • Accrued expenses
    • Deferred revenue
    • Current portion of long-term debt
    • Other current liabilities
  • Non-Current Liabilities:
    • Deferred revenue (non-current)
    • Long-term lease obligations
    • Long-term debt
    • Other non-current liabilities

4. Calculate Shareholders’ Equity

If a company or organization is privately held by a single owner, then shareholders’ equity will generally be pretty straightforward. If it’s publicly held, this calculation may become more complicated depending on the various types of stock issued.

Common line items found in this section of the balance sheet include:

  • Common stock
  • Preferred stock
  • Treasury stock
  • Retained earnings

5. Add Total Liabilities to Total Shareholders’ Equity and Compare to Assets

To ensure the balance sheet is balanced, it will be necessary to compare total assets against total liabilities plus equity. To do this, you’ll need to add liabilities and shareholders’ equity together.

balance sheet example 

If you’ve found that the balance sheet doesn't balance, there's likely a problem with some of the accounting data you've relied on. Double check that all of your entries are, in fact, correct and accurate. You may have omitted or duplicated assets, liabilities, or equity, or miscalculated your totals.

DO IT 

Prepare the balance sheet for Apple using the following condensed data from its fiscal year ended September 30, 2017 ($ in millions). 

Accounts payable $ 49,049
Other liabilities . $192,223
Cash . $20,289
Investments and other assets . $303,373
Land and equipment (net) . $33,783
Accounts receivable . $17,874
Owner, Capital, Sep. 30, 2017 . $134,047


2. The following list of accounts for Company Mauri´s Services Ltd. is available at the end of 2021.








 

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