Introduction to Accounting Preparing for a User’s Perspective

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Presentation transcript:

Introduction to Accounting Preparing for a User’s Perspective What is the Standard Format for a Balance Sheet? Debits and Credits Trainer By Kevin C. Kimball, CPA with support from www.canvas.net Free Jan. 2014 Available on the Google Play Store

Comparative: Classified: As of 12/31/X1 Assets = Liabilities + Equity As of 12/31/X1 As of 12/31/X2 Comparative: Versus Classified: Versus Current Short-term Non-current Long-term

= $70 $40 $30 Assets Liabilities + Equity $70 $40 $20 As of 12/31/X1 Key Concept: All Balance Sheets must Balance AS OF a given point in time.

Last Saturday in September As of 12/31/12 Bank of America As of 12/31/13 Comparative Dec. 31 Balance Sheet Balance Sheet As of 9/29/12 As of 9/24/11 Comparative Apple Last Saturday in September Balance Sheet Balance Sheet

K S C $1,000 $3,000 $2,000 $3,000 Equity $2,000 Note Payable (@10%) February 23, X1 $1,000 $3,000 Equity $1,000 Inventory (10 boards @ $100 each) $3,000 Kevin, Owner $2,000 K S C $2,000 Note Payable (@10%) Bank, Lender

As of Feb. 23, X1 What assets does KSC have? How did KSC finance those assets? Cash $4,000 Note payable $2,000 Equipment $1,000 Equity $3,000 Total assets $5,000 Total liabilities and equity $5,000 It balances !!!

If it’s wrong

1a) Business name 1b) Balance sheet name 1c) Balance sheet date (as of or as at) 3) Classified 2) Balances

Classified Balance Sheet – Assets are classified based on their “liquidity” Cash Most liquid Convert to cash within one year Current Assets Acct. Rec Non-current Assets or Long-term Assets Convert to cash after one year Land Least liquid

Classified Balance Sheet – Liabilities are classified based on how quickly cash will be needed to pay off the liabilities Payment due <= one year Note Payable To be paid within one year Current Liabilities Liquid Mortgage Non-current Liabilities or Long-term Liabilities To be paid after one year Solvent Payment due > one year

Assets Cash Accounts receivable Inventory Office supplies Prepaid insurance Prepaid rent Notes receivable Warehouse equipment Land Patents Trademarks Copyrights Goodwill Liabilities (examples of Debt Financing) Accounts payable Salaries and wages payable Income taxes payable Dividends payable Interest payable Unearned sales revenue Utilities payable Notes payable Mortgages payable Bonds payable Equity (examples of Equity Financing) Capital stock Retained Earnings

Asset Questions: Why is it an asset? What potential future benefit will it provide the business that would qualify it to be called an asset?  What could cause this asset to be used up so that it is no longer an asset and should be expensed?

Liability Questions: Why is it a liability? What did external creditors or lenders give the company, or what happened, that allowed external creditors and lenders to have claim on the company's assets?  What did the company do in the past that committed it to pay this amount off in the future?  What will it have to sacrifice in the future to satisfy these claims?

Equity Questions: Why is it equity? How have the owners either contributed resources to the business or earned profits which they have retained in the business to justify their equity claims on the business’ assets?

Introduction to Accounting Preparing for a User’s Perspective What is the Standard Format for a Balance Sheet? Debits and Credits Trainer By Kevin C. Kimball, CPA with support from www.canvas.net Free Jan. 2014 Available on the Google Play Store