Balance Sheet Flashcards

Balance Sheet

Overview

The balance sheet is a crucial financial statement that presents a company's assets, liabilities, and equity at a specific point in time. It's a legal requirement to prepare one at the end of a company's financial year, to be included in reports, accounts, and submitted to the Registrar of Companies.

Purpose

The balance sheet helps potential investors assess a company's worth, trade creditors evaluate if a company can pay its debts, shareholders determine the company's value, and other companies decide whether to make a takeover bid.

Assets

Assets are items of value owned by the business.

Current (Short-Term) Assets

These are assets used within one year. Examples include:

• Cash

• Accounts receivable (debtors)

• Inventory (stock)

• Supplies

Non-Current (Fixed) Assets

These are assets owned for more than one year. Examples include:

• Land

• Building

• Factory

• Furniture

• Vehicles

• Equipment

• Machinery

Liabilities

Liabilities are debts owed by the business.

Current (Short-Term) Liabilities

These are debts repaid in less than one year. Examples include:

• Tax

• Interest

• Dividends

• Bank overdrafts

• Rental fees

• Accounts payable (creditors)

Non-Current (Long-Term) Liabilities

These are debts repaid over more than one year. Examples include:

• Bank loan

• Debentures

• Long-term lease

Financed By (F.B) / Equity

This represents how the business is financed.

Equity

The amount of money that would be returned to shareholders if the business liquidated its assets and paid off its liabilities.

Retained Profit (Reserves)

Accumulated profits that are reinvested in the company rather than distributed as dividends.

Share Capital

The amount of money the owners of a company have invested in the business.

Key Formulas

Working capital is calculated as:
Working\ Capital = Current\ Assets - Current\ Liabilities

Total assets consist of:
Total\ Assets = Fixed\ Assets + Working\ Capital

Net assets are total assets less non-current liabilities:
Net\ Assets = Total\ Assets - Non-Current\ (Long-Term)\ Liabilities

Equity is the sum of share capital and retained profit:
Equity = Share\ Capital + Retained\ Profit

Net assets also equal equity:
Net\ Assets = Equity

Practice Problems

Problem 1

Construct a balance sheet from the following information:

• Cash: $51,000

• Bank loan: $100,200

• Lease: $17,500

• Share capital: $175,000

• Vehicles: $50,000

• Accounts receivable: $16,120

• Equipment: $113,183

• Accounts payable: $17,403

• Building: $200,500

• Debentures: $100,000

• Retained profit: $50,700

• Inventory: $30,000

Problem 2

Construct a balance sheet for Dell INC. for the financial year ending February 3, 2020, using the following data:

• Cash: $13,852

• Inventory: $9,803

• Accounts receivable: $4,389

• Supplies: $1,404

• Equipment: $2,124

• Land: $12,961

• Furniture: $9,557

• Accounts payable: $11,656

• Interest: $5,345

• Tax: $5,000

• Loan: $13,615

• Share capital: $9,600

• Retained profit: $8,874

Problem 3

Construct a balance sheet from the following information:

• Accounts payable: $5,000

• Wages payable: $35,900

• Cash: $2,200

• Supplies: $3,800

• Debentures: $211,900

• Tax: $6,100

• Share capital: $100,000

• Accounts receivable: $40,500

• Land: $105,500

• Building: $180,000

• Interest: $7,100

• Equipment: $201,000

• Inventory: $31,000

• Retained earnings: $229,000

• Dividends: $50,000

• Furniture: $81,000

Problem 4

Construct a balance sheet for Greener Grass Corporation for April 7, 2014, using the following data:

• Cash: $3,800

• Accounts payable: $400

• Equipment: $4,600

• Bank loan: $4,000

• Land: $3,750

• Accounts receivable: $1,250

• Share capital: $8,850

• Retained profit: $150