FINACC || Balance Sheet Terms

January 12, 2018

10:06
 
BALANCE SHEET/STATEMENT OF FINANCIAL POSITION
● A report showing a snapshot of a firm's Assets and Equities at a certain point in time
 
Taken from Accountingcoach.com
 
ASSETS
● Resources which are:
o Acquired in a transaction
o Economic resources
 o Controlled by the entity
o Objectively measurable in terms of cost (or fair value) at the time of acquisition
 
● Items are classed as economic resources if they will provide future benefits to the firm. This
consideration will be applied if the item(s) are:
o cash or may be converted to cash
o goods expected to be sold and exchanged for cash
o to be used in the future and will generate cash inflows
● Current assets: Items which are expected to be realized in cash, sold or consumed within a
company's operating cycle (ex. 1 year)
● Quick Assets: Assets that can be quickly converted to cash. May include the following:
o Cash
o Accounts Receivable
o Marketable Securities
o Inventory (in some cases)
 
CURRENT ASSETS
CATEGORY DEFINITION

Cash Funds which are readily available for disbursement

Marketable Securities Investments that are both readily marketable and expected
to be converted into cash within a year

Accounts Receivable Amounts owed to the entity by its customers. Also includes
amounts that the customers owe on credit.

Notes Receivable/ Amounts owed to the entity by parties other than

Other Receivables customers.

Inventory The aggregate of items that are either:

● Held for sale in the ordinary course of business
● In process of production for such sale
● Soon to be consumed in the production of goods and
services that will be available for sale

Prepaid Expenses Assets which may be intangible in nature, whose usefulness

will expire in the future (ex. Insurance policies)

Refundable Taxes Amounts overpaid by the firm and is set to be refunded by

the government
 
NONCURRENT ASSETS
CATEGORY DEFINITION

Fixed Assets Tangible, long lived assets which were acquired to produce
goods and services, and generate cash inflows. If held for
resale, they will be classed as inventory. (ex. Property,
Plant and Equipment)
  
Contra Asset Account: Accumulated Depreciation

Long-term Securities of one company owned by another in order to

Investments control the other firm or in acquiring a long-term
investment in another company

Intangible Assets Valuable but non-physical items which are controlled by the
company. Includes but not limited to:
● Patents
● Copyrights
● Trademarks
 
LIABILITIES
● Obligations to transfer assets or provide services to outside parties arising from events that have
happened
● Liabilities are always recorded as part of past events
● Generally, they are claims against the entity's assets as a whole. Unless specified, an individual
liability is not a claim against any specific asset or group of assets
● Current liabilities: Liabilities which are expected to be fulfilled or extinguished during a firm's
normal operating cycle or one year
 
CURRENT LIABILITIES
CATEGORY DEFINITION

Accounts payable Claims of suppliers which arose from rendering their

services to the entity

Notes payable Amounts owed to financial institutions

Taxes payable Amounts the entity owes the government for taxes

Wages Payable Amounts owed to employees for hours worked but not yet
paid as of the release of the balance sheet

Salaries Payable Amounts owed for the salaries of the employees but have
yet to be paid

Accrued expenses Amounts that have been earned by outside parties but
have not yet been paid by the entity

Deferred Revenues or Arises since the entity has received advanced payments for
Unearned revenues a service it has agreed to render in the future

Current Portion of Part of a long term loan that is due within the next 12
Long-term Debt months

Other liabilities Obligations which are not classed under current liabilities.
May sometimes be classed as non-current liabilities or long
term debt
  
OTHER LIABILITY ACCOUNTS
CATEGORY DEFINITION

Unearned An account reporting amounts received in advance for providing goods

Fees and services. As the agreed upon products or services have been
rendered, this account is decreased and the respective amount is
transferred to a revenue account

Bonds Generally a long term liability account containing the face amount, par
Payable amount, or maturity amount of the bonds issued by a company that
are outstanding as of the balance sheet date.
 
Contra Account: Discount on Bonds Payable
 
 
OWNER’S EQUITY
● The amounts the owners have invested into the entity
 
OWNER'S EQUITY
CATEGORY DEFINITION

Paid-in Capital or Amount the owners directly invested into the business by
Contributed Capital purchasing shares of stock. Paid-in capital is further
subdivided into capital stock and additional paid in capital

Retained earnings The difference between the entity's total earnings from its
inception to date and the amount of total amount of dividends
paid to its shareholders over its time in operation. The
difference represents that part of the total earnings that have
been retained for use/ reinvested in the business. If the
difference is negative, then this item is labelled as a deficit
instead of earnings.
 
Contra Equity Account: Treasury Stock
A corporation's own stock repurchased from stockholders

Common stock The type of stock that is present at every corporation. (Some
corporations have preferred stock in addition to their common
stock.) Shares of common stock provide evidence of
ownership in a corporation. Holders of common stock elect
the corporation's directors and share in the distribution of
profits of the company via dividends.

If the corporation were to liquidate, the secured lenders

would be paid first, followed by unsecured lenders, preferred
stockholders (if any), and lastly the common stockholders
From <https://www.accountingcoach.com/balance-sheet/explanation/3>
  

Preferred stock A class of corporation stock that provides for preferential

treatment of dividends: preferred stockholders will be paid
dividends before the common stockholders receive dividends.

In exchange for the preferential treatment of dividends,

preferred shareholders usually do not share in the
corporation's earnings and instead receive only their fixed
dividend.
 
From <https://www.accountingcoach.com/balance-sheet/explanation/3>
 
 
● Net worth is a synonym for owner's equity that is used in common parlance. The term may be
misleading since it implies that the amount indicates what the owner's interest is "worth" which
has been emphasized as erroneous.
● Owner's equity is also terms as net assets since the amount shown is always equal to assets net of
(minus) liabilities
 
● In a proprietorship (single owner), business the owner's equity is shown as a single item titled as
"Dan Besa, Capital" instead of making a distinction between the owner's initial investment and the
accumulated earnings retained in the firm
● In a partnership (joint-venture), there will always be an item for each owner
● An owner's capital is increased by his share of the entity's earnings during the period and is
decreased by the owner's drawings (drawings: withdrawal of capital by the owner)