BALANCE SHEET

Did you know?

The accounting balance sheet is one of the major financial statements used by
accountants and business owners. This is also a formal statement showing the financial
condition or financial position of a company as of given date.

Actually, this is an accounting report of the assets, liabilities and capital.

The term financial position or financial condition refers to the ability of the company to pay its
obligations when they mature. The company’s liquidity, solvency and stability are normally
reflected in the balance sheet.

CLASSIFICATION OF ASSETS:

For balance sheet purposes, assets are classified as:

1. Current Assets
2. Investments
3. Property, Plant & Equipment
4. Intangibles
5. Other assets

CURRENT ASSETS:

1. Cash and cash equivalents

2. Accounts receivables- The credit given to the customer is known as Accounts
Receivables. This means that the company has rendered services or deliverd the
product to the customer, however, it has not collected the cash fully yet.
3. Inventory- the goods and the material that is in stock. There are three types of
Inventory – Raw material inventory, work in progress inventory and finished
goods inventory.

4. Prepaid Expenses- These are exactly what they sound like. If a company pays a
$10 million insurance premium on the last day of the month that will provide
 coverage for the entire month, the company will record a $10 million prepaid
expense to account for the insurance expense it will show in the month that it
already paid for.
5. Other Current Assets-Other CAs consists of other non-cash assets that are owed
to the company within one year. Companies often combine small accounts into
an “other” category. Detailed information on Other CAs may be included in the
notes to the Financial Statements. Analysts should always check the notes in the
annual report when these figures are relatively high and if they are unclear what
an account represents.

INVESTMENT:
The long-term investment assets shown on the balance sheet represent assets that
a company intends to hold for more than one year. They can consist of stocks
and bonds of other companies, property, equipment, and possibly Treasuries or
cash equivalents in greater than one year maturities. Usually the long-term
investment assets are not highly liquid and include machinery assets, property, and
other depreciating assets as well as longer term investments the company chooses
to hold for an extensive period of time.

Long-term investment assets can also include stock in a company's affiliates and
subsidiaries, or bonds.

Generally anything under assets in the balance sheet is considered an investment by

the company. Current assets will include the company’s more liquid assets like cash,
marketable securities, inventory, and accounts receivable. Current assets have a
holding life of 12 months or less.

Long-Term Investments: Balance Sheet

Short-term investments and long-term investments on the balance sheet are both
assets, but they aren't recorded together on the balance sheet. Investments can
include stocks, bonds, real estate held for sale and part ownership of other
businesses.

Suppose you have to report a quoted investment on the balance sheet. A quoted
investment is, for example, shares whose values are quoted on a stock exchange. If
you plan to sell them in two months, they're listed as current assets on the balance
sheet. If it's two years, they'd go in a separate category:

Property, Plant and Equipment (PPE) are long-term assets vital to business
operations and not easily converted into cash. Property, plant, and equipment are
tangible assets, meaning they are physical in nature or can be touched. The total value
of PP&E can range from very low to extremely high compared to total assets.

 Property, plant, and equipment are also called fixed assets, meaning they are
physical assets that a company cannot easily liquidate.
 PP&E are long-term assets vital to business operations and the long-term
financial health of a company.
 Purchases of PP&E are a signal that management has faith in the long-term
outlook and profitability of its company.
Accounting for PP&E
PP&E is recorded on a company's financial statements, specifically on the balance
sheet. PP&E is initially measured according to its historical cost, which is the actual
purchase cost and the costs associated with bringing assets to its intended use.
For example, when purchasing a building for retail operations, the historical cost could
include the purchase price, transaction fees, and any improvements made to the
building to bring it to its destined use. The value of PP&E is adjusted routinely as fixed
assets generally see a decline in value due to use and depreciation.

Samples:

1. Buildings, furniture and fixtures, land, machinery, furniture and fixtures,

machineries, vehicles.

What Is an Intangible Asset?

An intangible asset is an asset that is not physical in nature. Goodwill, brand
recognition and intellectual property, such as patents, trademarks, and copyrights, are
all intangible assets. Intangible assets exist in opposition to tangible assets, which
include land, vehicles, equipment, and inventory.

Additionally, financial assets such as stocks and bonds, which derive their value from
contractual claims, are considered tangible assets.

 An intangible asset is an asset that is not physical in nature, such as a patent,

brand, trademark, or copyright.
 It gives the owner right, privilege and competitive advantage

Intangible assets includes;

1. Patent- a government authority or license conferring a right or title for a set period,
especially the sole right to exclude others from making, using, or selling an invention.

2. Goodwill- the established reputation of a business regarded as a quantifiable asset, e.g.,

as represented by the excess of the price paid at a takeover for a company over its fair
market value.

3. Franchise- an authorization granted by a government or company to an individual or

group enabling them to carry out specified commercial activities, e.g., providing a
broadcasting service or acting as an agent for a company's products.

4. Copyright- the exclusive legal right, given to an originator or an assignee to print,

publish, perform, film, or record literary, artistic, or musical material, and to authorize
others to do the same.

5. Licenses- a permit from an authority to own or use something, do a particular thing, or

carry on a trade (especially in alcoholic beverages).

6. Trademark- a symbol, word, or words legally registered or established by use as

representing a company or product.

7. Leasehold- the holding of property by lease

OTHER ASSETS: this is a balance sheet caption under which are listed non-current
items which cannot appropriately be included in the usual asset categories. This is not
properly classified.

1. Advances to officers and employees, directors, stockholders not collectible within

1 year.
2. Long term installments receivables as in most real estate installment sales. Only
the portion due in 1 year should be shown as current asset.
3. Non productive property or property no longer used in the operations such as
plant facilities which have been idle for an extended period of abandonement but
not physically retired.
4. Restricted cash acct such as cash in closed bank, blocked cash and restricted
deposits in foreign countries.
5. Deferred charges such as organization costs and deferred pensions.

A deferred charge is a long-term prepaid expense that is carried as an asset on a balance

sheet until used/consumed. Deferred charges often stem from a business making
payments for goods and services it has not yet received, such as prepaid
insurance premiums or rent. A deferred charge is the equivalent of a long-
term prepaid expense, which is an expenditure paid for an underlying asset that
will be consumed in future periods, usually a few months. Prepaid expenses are
a current account, whereas deferred charges are a non-current account.