Chapter 4 - Balance Sheet

Assets

Resources owned by a company that have economic value and can provide future benefits.

Current Assets

cash and other assets a company expects to convert into cash within one year or within the operating cycle.

CA in order of Liquidity

1. cash and cash equivalents

2. short - term investments

3. receivables

4. inventories

5. prepaid expenses

cash and cash equivalents

short - term investments that mature within 3 months or less

• shown at fair market value = current market price

short-term investments 

Short-term investments are stocks or bonds that a company buys to make extra money but plans to sell within a year.

receivables

monry owed to the company - shown at net realizable value or at estimated amount collectibles

net realizable - Total receivables minus the amount the company thinks it won’t be able to collect (bad debts).

prepaid expenses

shown at unexpired or unconsumed cost

Examples of Cash Equivalents:

• Treasury bills

• Money market funds

• Commercial paper (short-term loans from large companies)

• Certificates of deposit (CDs) that mature in 3 months or less

• Short-term government bonds

examples of short term investments

1. Equity Securities (Stocks)

e shares of other companies that are actively traded and easily sold

2. Debt Securities (Bonds)

loans to governments or corporations that the company plans to sell or that mature within one year.

Examples:

• A U.S. Treasury bill or Treasury note maturing in 6 months.

• A corporate bond issued by General Electric (GE) or Ford Motor Co. that matures in less than a year.

• Commercial paper issued by Procter & Gamble or Coca-Cola, typically maturing in 30–270 days.

• A short-term municipal bond issued by a city government, maturing in less than a year.

3. trading security

Non-Current Assets

long-term things a company owns and uses to keep the business running and earning money.

They last more than a year

Non-Current Assets include

1. long term investments

2. PPE

3. Intangible assets

4. other assets

Long-Term Investments

• Stocks or bonds of other companies held long-term

• Land held for future use or investment

• Long-term notes receivable

PPE 

Buildings, land, machinery, equipment, furniture, vehicles, timberland, minerals

• Reported at: Cost – Accumulated Depreciation (except land, which is not depreciated)

Intangible assets

Nonphysical assets that provide long-term value.

Examples: Patents, trademarks, copyrights, goodwill, franchises

• Reported at: Cost (or fair value if purchased), often amortized over useful life.

Other Assets

Items that don’t fit in the categories but will provide benefit beyond one year.

• Examples:

  • Long-term prepaid expenses (like multi-year insurance)

  • Deferred tax assets

  • Bond issue costs

Liabilities

probable future sacrifices of economic benefit

Current Liabilities

1. payables

2. unearned revenue

3. other liabilities - working capital

liquidity

how quickly assets are converted into cash and liabilities are paid, “nearness to cash”

payables

amounts a company owes to others, usually as a result of purchasing goods or services on credit.

unearned revenue

money received in advance for something the company hasn’t done yet

other liabilities

• Dividends Payable

• Short-Term Notes Payable

• Current portion of long-term debt

• short term obligations from the purchase of equipment

paid within operating cycle

Working Capital

CA - CL 

represents the net amount of a company’s liquid resources

Long-Term Liabilities

obligations of a company that are not due within one year (or the company’s operating cycle, whichever is longer).

• Bonds Payable

• Long-Term Notes Payable

• Lease Liabilities (Long-Term)

• Pension and Post-Retirement Obligations

• Deferred Tax Liabilities

• Contingent Liabilities (if probable and measurable)

Stockholder’s Equity

1. capital stock

2. additional paid in capital

3. retained earnings

4. accumulated other comprehensive income

5. treasury stock

Common Stock

• Represents ownership shares issued to investors.

• Usually recorded at par value (the nominal value of the stock).

Additional Paid-In Capital (APIC)

• The amount investors paid over the par value of the stock.

• Example: Issuing common stock with $1 par value for $10/share → $1 goes to Common Stock, $9 to APIC.

Retained Earnings

net income - dividends over the company’s life.

• Represents profits kept in the business for growth or reinvestment.

• Example: Company has $100,000 in net income and paid $20,000 dividends → $80,000 retained earnings.

Treasury Stock (Contra-Equity)

• Company’s own stock that it repurchased from shareholders.

• Reduces total stockholders’ equity.

Accumulated Other Comprehensive Income (AOCI)

Gains/losses not included in net income, such as unrealized gains/losses on certain investments or foreign currency translation adjustments.