The Balance Sheet and Financial DisclosuresINTERMEDIATE ACCOUNTING I

CHAPTER 3

The classified balance sheet presents assets, liabilities, and equity broken down by specific classifications.

CLASSIFIED BALANCE SHEET

 

 Assets:Current assetsInvestmentsProperty, plant, and

equipmentIntangible assetsOther assets

Liabilities:Current liabilitiesLong-term liabilities

Shareholders’ equity:Paid-in capitalRetained earnings

 

Current assets include cash and all other assets expected to become cash or be consumed within one year or the operating cycle, whichever is longer.

CURRENT ASSETS

CURRENT ASSETS

Cash and Cash EquivalentsCash Equivalents include liquid investments that have a

maturity date of three months or less from the date of purchase, such as:

Short-term InvestmentsInvestments are classified as current if the company’s

management ▶ intends to liquidate the investment in the next year or

operating cycle, whichever is longer, and▶ has the ability to do so, i.e., the investment is marketable.Accounts ReceivableInventoriesPrepaid Expenses 

Noncurrent assets are expected to last longer than one year.

NONCURRENT ASSETS

NONCURRENT ASSETSInvestments Assets not used directly in the operations of the business.

Property, Plant, and Equipment Tangible, long-lived assets used in the operations of the

business.

They are usually the primary revenue-generating assets of the business.

Intangible Assets They lack physical existence.

Exclusive rights to something — a product, process, etc.

Other Assets A catch-all classification that includes long-term prepaid

expenses, called deferred charges, and any noncurrent asset not falling in one of the other classifications.

Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

LIABILITIES

Current liabilities are those obligations that are expected to be satisfied within one year or the operating cycle, whichever is longer.

CURRENT LIABILITIES

CURRENT LIABILITIESAccounts Payable Obligations to suppliers of merchandise or services

purchased on open account. Payment usually is due in 30 to 60 days.Notes Payable Written promises to pay cash at some future date. Usually require the payment of explicit interest.Unearned Revenues Represent cash received from a customer for goods or

services to be provided in a future period.Accrued Liabilities Obligations created when expenses have been incurred but

won't be paid until a subsequent reporting period.Current Maturities of Long-term Debt

Amounts from long-term debt, such as mortgages, due in the current period

Long-term liabilities are those obligations that are not expected to be satisfied within one year or the operating cycle, whichever is longer.

LONG-TERM LIABILITIES

The shareholders' equity section of the balance sheet includes paid-in capital (invested capital), treasury stock, and retained earnings (earned capital).

Paid-in Capital•Par Value of Preferred and/or Common Stock•Paid-in capital in excess of par for Preferred and/or Common StockTreasury Stock•Shares of stock re-acquired by a company•Reduces total equityRetained Earnings•Earnings retained by the company rather than being distributed as dividends

SHAREHOLDERS’ EQUITY

Retained EarningsBeginning Retained Earnings (as shown on the trial

balance)Add Net Income (or Deduct Net Loss)Deduct DividendsEquals Ending Retained Earnings (reported on the balance sheet)

RETAINED EARNINGS CALCULATION

DISCLOSURE NOTESSummary of Significant

Accounting Policies

Conveys valuable information about the company’s choices from

among various alternative accounting methods.

Disclosure notes explain or elaborate on the data presented in the financial statements.

The Balance Sheet and Financial DisclosuresINTERMEDIATE ACCOUNTING I – CHAPTER 3

END OF PRESENTATION