Elements of the Balance Sheet CON #6 Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. 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. Equity is the residual interest in the assets of an entity that remains after deducting its liabilities. In a business enterprise, the equity is the ownership interest.

Balance Sheet: 8 Major Classifications 1) Current Assets Cash Short-Term Investments Receivables Inventories Prepaid Expenses 2) Long-Term Investments 3) Property, Plant & Equipment 4) Intangible Assets 5) Other Assets 6) Current Liabilities 7) Long-Term Liabilities 8) Owners’ Equity Capital Stock Additional Paid-in Capital Retained Earnings

Balance Sheet: 8 Major Classifications (1) Current Assets - are cash and other assets expected to be converted into cash, sold, or consumed either in one year or in the operating cycle, whichever is longer. Examples: Cash Cash Equivalents Short-term Investments Accounts Receivable Inventories Prepaid Expenses

Balance Sheet: 8 Major Classifications (2) Long-Term Investments - 4 types: (1) investments in securities, (such as bonds, common stock, or long-term notes) (2) investments in tangible fixed assets not currently used in operations (such as land held for speculation (3) Investments set aside in special funds such as a sinking fund, pension fund, or plant expansion fund. (The cash surrender value of life insurance is included here.) (4) Investments in nonconsolidated subsidiaries or affiliated companies

Balance Sheet: 8 Major Classifications (3) Property, Plant, & Equipment are properties of a durable nature used in the regular operations of the business. Examples: land buildings machinery furniture tools wasting resources (timber, minerals) only land is not depreciable natural resources are depleted

Balance Sheet: 8 Major Classifications (4) Intangible Assets lack physical substance & usually have a high degree of uncertainty concerning their future benefits patents copyrights franchises goodwill trademarks trade names secret processes organization costs ….. Amortize (expense over 5-40 years)

Balance Sheet: 8 Major Classifications (5) Other Assets could include long-term prepaid expenses (deferred charges) noncurrent receivables intangible assets assets in special funds deferred income taxes property held for sale advances to subsidiaries

Balance Sheet: 8 Major Classifications (6) Current Liabilities - are the obligations that are reasonably expected to be liquidated either through the use of current assets or the creation of other current liabilities. Includes: payables resulting from the acquisitions of goods & services (A/P, Wages Payable, etc.) collections of receivables in advance (unearned revenue) other liabilities (current portion of long-term debt)

Balance Sheet: 8 Major Classifications (7) Long-Term Liabilities - obligations that are not reasonably expected to be liquidated within the normal operating cycle (or 1 year) 3 types: obligation arising from specific financing situations, such as the issuance of bonds, long-term lease obligations, and long-term notes payable obligations arising from the ordinary operating activities of the organization, such as pension obligations & deferred income tax liabilities obligations that are dependent upon future contingencies: the occurrence or non-occurrence of one or more future events to confirm the amount payable, or the payee, or the date payable, such as service or product warranties or other contingencies

Balance Sheet: 8 Major Classifications (8) Owners’ Equity Usually includes: (1) Capital Stock - the par or stated value of the shares issued (2) Additional Paid-in capital - representing the amounts initially paid for stock in excess of the par or stated value (3) Retained Earnings - the undistributed earnings (*) also includes other information relating to comprehensive income

Supplemental Balance Sheet Information Contingencies ... material events that have an uncertain outcome Accounting Policies ... explain the valuation methods used or the basic assumptions made concerning inventory valuation, depreciation methods, investments in subsidiaries, etc. Contractual Situations ... explain certain restrictions or covenants attached to specific assets or, more likely, to liabilities Post Balance Sheet Disclosures ... disclose certain events that have occurred after the balance sheet date but before the financial statements have been issued SFAS #6

Techniques of Disclosure Parenthetical Explanations Notes Cross Reference & Contra Items Supporting Schedules