Accounts Receivable: 

      Amounts customers owe the company for goods or services

                                              provided; normally collected in 30 to 90 days
 
Inventory:                             Items held only for sale to the customer 
 
Prepaid Expenses:              Paid in advance before the service is provided;
                                              gives future benefit (rent, insurance)
 
Supplies:                              Items that are used up in day to day operations
 
Notes Receivable:              Amounts owed to the company; normally interest is
                                              charged and the note is repaid in longer than 3 months
 
Investments:                       The company takes their excess cash and invests it
                                              in stocks or bonds to earn a return.
                                              Investments can be short term or long term
 
 
Property/Plant/Equipment:          Assets used long-term to generate revenues; 
                                                        they have physical substance
                                                        (Buildings, Equipment, Autos, Land, Computers)
                                                              
- Accumulated Depreciation:    The total amount for all prior years (cumulative) of
                                                     depreciation expense for all prior periods.  This is a
                                                      contra account subtracted from plant, and equipment
 
 
Intangible Assets:        No physical substance - used long-term to generate revenues
                                       The company has the exclusive right to do something;
                                        Includes trademarks, copyrights, patents, franchises, goodwill
 
                                                                Cash paid to purchase a company
                                                 less   Fair market value of net assets acquired
                                                            =   Goodwill 
 
 
Accounts Payable:          Amounts owed to suppliers, normally paid in 30-60 days
                                          Suppliers are those who provide inventory or goods and
                                          services over and over again
 
 
Accrued Expense:             Both of these are expenses that have not yet been paid 
Accrued Liabilities:           that the company owes – examples are:  employee taxes,
                                            legal, advertising, bonuses, retirement plans
 
 
_________ Payable:          Expenses incurred that have not yet been paid
                                            (Salaries, Rent, Interest, Taxes)
                                            If an amount is large enough, it gets its own line.  If it is not
                                            large enough it will be included in accrued expenses.
 
Unearned Revenues:        Cash received from customers before the good or service is
                                             provided.  The company owes the customer a good/service
 
 
Current Maturities of         The portion of long –term debt that will be repaid
   Long Term Debt:                within 1 year
                                                 
 
L/T Notes Payable and        Amounts owed to banks and other financing companies
  Long-term Debt:                that will be paid later than one year from now
                                              Amounts due within a year are reported as current
                                              maturities of long term debt
                                                  
 
Bonds Payable:                  Amounts borrowed from investors; normally long-term
                                                
 
Common Stock or:             Funds received from investors in exchange for
Contributed Capital:          ownership – common stock is reported at par value
 
 
Additional Paid in Capital:   Amounts over and above par raised from investors 
                                               from the sale of stock (ownership)
 
Retained Earnings:            Total of all (cumulative) profits and losses less dividends 
                                              paid to owners
                                               
 
Treasury Stock:                  The company buys and holds its own stock
 
 
 
Operating cycle           the time it takes a company to spend cash to do business and get the            
cash back again (buy inventory, pay expenses, sell to the customer and                                              
collect from the customer).   Usually less than one year.
 
The balance sheet is listed in the order of liquidity – how soon it will impact cash
 
Current means the cash is expected to be collected or paid in 1 year or less
 
Long term/Non-current means the cash is expected to be collected or paid
   in longer than 1 year
 
The balance sheet is reported at historical cost; fair market value on the date of 
   the transaction (buy the asset or borrow money)
 
    Assets are not reported at fair market value - unless fair market value is reliable
     (investments) or there has been a permanent decrease in value 
 
Internally generated goodwill is not reported on the balance sheet (i.e. a good management team, a
good location, name brand recognition developed over time.)
   It is too difficult to determine a reliable value so it is not reported.

The Format of the Balance Sheet:  

 
Assets:                                                                      Liabilities:
 
Current:                                                         Current:
            Cash                                                          Accounts Payable
            Accounts Receivable                                 Accrued Expenses (Liabilities)
            Inventory                                                    Unearned Revenues
            Prepaid Expenses                                       “_______” Payables                                    
            Short-term Investments                              Income Taxes Payable
            Short-term Notes Receivable                     Short-term Notes Payable
           Supplies                                                      Current Portion of Long-term Debt
                 Total Current Assets                                    Total Current Liabilities
               
            Long-term Investments                              Bonds Payable
            Long-term Notes Receivable                     Long-term Debt
                                                                              Long term Notes Payable               

                                                                              Total Liabilities

            Property/Plant/Equipment (P/P/E):
              Land
              Building
              Equipment
                 Less Accumulated Depreciation
                       Net P/P/E                                            Stockholder’s Equity:
 
                                                                                       
            Intangible Assets                                         Common Stock
            Goodwill                                                       Additional Paid in Capital
            Patents, net                                                 Retained Earnings
            Trademarks, net                                              less Treasury Stock
             Copyrights, net                                                                                           
                Total Intangible Assets                              Total Stockholder’s Equity
 
            Other Assets                                     
 
            Total Assets                         must =     Total Liabilities & Stockholder’s Equity

http://www.learnfinancialaccounting.com/freematerial/balsheet/practice.htm
Balance Sheet – Practice Problem 1 – Classification of accounts
 
For each of the following accounts, indicate where the account is reported on the balance sheet. 
 
CA     Current asset             LTA     Long term asset                    SE  Stockholder’s Equity
CL     Current liability           LTL     Long term liability                N     Not reported
 
 
______1.  retained earnings
______2.  supplies
______3.  land
______4.  trademarks
______5.  cash
______6.  accounts receivable
______7.  unearned revenue
______8.  accrued expenses
______9.  prepaid expenses
_____10.  contributed capital
_____11.  long term debt due in less than 1 year
_____12.  salaries payable
_____13.  accumulated depreciation
_____14.  inventory
_____15.  depreciation expense
_____16.  bonds payable
_____17.  notes payable due in 5 years
_____18.  notes receivable due in 6 months
_____19.  investments to be sold in 3 months
_____20.  amount paid above net assets when purchasing a company 

Answers to Practice As You Learn

 SE       1.  retained earnings

CA      2.  supplies
LTA     3.  land      (PPE)
LTA     4.  trademarks     Intangible
CA      5.  cash
CA      6.  accounts receivable
CL       7.  unearned revenue    (customer paid in advance, you owe them)
CL       8.  accrued expenses    (expenses not yet paid so you owe them)
CA      9.  prepaid expenses     (expenses paid ahead of time, gives you future benefit)
SE       10.  contributed capital  (also called common stock)
CL       11.  Long term debt due in less than 1 year  (current maturity of LT D)
CL       12.  salaries payable
LTA     13.  accumulated depreciation     (contra-asset reported with P/P/E)
CA      14.  inventory
N         15.  depreciation expense    (goes on the income statement)
LTL     16.  bonds payable         (assume long term unless it is specified less 1 year)
LTL     17.  notes payable due in 5 years
CA      18.  notes receivable due in 6 months
CA      19.  investments to be sold in 3 months
LTA     20.  amount paid above net assets when purchasing a company (Goodwill)   

Balance Sheet – Practice Problem 2 – Prepare a balance sheet

 
The following items were taken from the records of a company as of December 31st.  
 

Accounts Payable 47,000   Long-term Notes Receivable 35,000

Accounts Receivable 22,000 Patent,net 6,000
Building 215,000 Accrued Expenses 9,000
Cash 15,000 Short-term Notes Payable 135,000
Equipment 76,000 Common Stock 1,000
Retained Earnings ?? Bonds Payable 75,000
Prepaid Expenses 12,000 Accumulated depreciation 92,000
Sales 123,000 Dividends paid 30,000
Depreciation Expense 18,000 Unearned Revenue 8,000
Cost of Goods Sold 75,000   Goodwill 28,000
Long term Investments 100,000   Treasury Stock 25,000
Inventory 79,000   Short Term Investments 50,000
Interest Payable 1,000   Long Term Debt 150,000

 
Prepare a balance sheet in proper format for the company as of December 31s

Solution:
Assets:   Liabilities:
Current Assets: Current Liabilities:
Cash 15,000 Accounts Payable 47,000
Accounts Receivable 22,000 Accrued Expenses 9,000
Inventory 79,000 Unearned Revenues 8,000
Prepaid Expenses 12,000 Interest Payable 1,000
Short-term Investments 50,000 Short-term Notes 135,000
Payables
Total Current Assets 178,000   Total Current Liabilities 200,000
     
Long-term Investments 100,000   Bonds Payable 75,000
Long-term Notes Rec 35,000   Long-term Debt 150,000
    Total Liabilities 425,000
     
Property/Plant Equipment:    
Building 215,000    
Equipment 76,000    
Less Accum Depreciation (92,000)    
Net P/P/E 199,000   Stockholder's Equity:
     
Intangible Assets   Common Stock 1,000
Goodwill 28,000   Retained Earnings 145,000
Patents, net 6,000   less Treasury Stock (25,000)
Total Intangible Assets 34,000   Total Stockholder's Equity 121,000
     
  _________     __________
Total Assets 546,000 = Total Liabilities &
    Stockholder's Equity 546,000
 
      To get the amount for retained earnings:
    Total assets have to equal total liabilities plus total owners equity.  When you know
     the amount of total assets you can determine total stockholders equity by total
     assets less total liabilities (546 – 425 = 121).  Once you know total stockholders
     equity you can determine the amount of retained earnings required to get the total
     stockholder’s equity to be what it has to be.
 
            Make sure you show subtotals and totals.
 
           Revenues, expenses, gains, and losses are not reported on the balance sheet.
 
            Dividends paid are not reported on the balance sheet.  They are included in the
              retained earnings amount, do not show it separately.
 
           Depreciation expense is not the same thing as accumulated depreciation. 
            Depreciation expense is for this period only and goes on the income statement. 
            Accumulated depreciation is the total of all prior years and goes on the balance
            sheet

13. For each of the following accounts, indicate where the account is reported on the 
balance sheet as of December 31st.

CA Current asset LTA Long term asset SE Stockholder’s Equity

CL Current liability LTL Long term liability N Not reported

________a. accounts receivable

________b. accounts payable
________c. treasury stock
________d. sales 
________e. supplies
________ f. patents
________ g. accrued expenses
________ h. common stock
________ i. bonds payable
________ j. accumulated depreciation
________ k. cost of inventory sold
________ l. unearned revenues

14. The following items were taken from the records of a company as of December 31st.

Accounts Payable 27,000 Long-term Notes Receivable 15,000

Accounts Receivable 22,000  Patent, net 36,000
Building 201,000  Accrued Expenses 6,000
Cash 15,000  Long Term Debt 120,000
Equipment 76,000  Common Stock 50,000
Retained Earnings ??  Inventory 26,000
Prepaid Expenses 8,000  Accumulated depreciation 42,000
Long term Investments 100,000  Treasury Stock 5,000
     

Prepare a balance sheet in proper format for the company as of December 31st

15. Review each of the following transactions and determine if the transaction will increase (I)
decrease (D) or have no effect (NA) on TOTAL ASSETS of the company.

_______1. Borrow money from the bank

_______2. Pay cash for inventory to sell to the customers
_______3. Issue common stock to investors
_______4. Purchase a truck for company use, agree to a notes payable
_______5. Pay employees who worked this week
_______6. Receive the utility bill – it will be paid later
_______7. Sell goods to a customer on account
_______8. Pay for insurance for the next 6 months
_______9. Use cash to make an investment to be held long term
______10. Purchase the company’s own stock from investors

Solutions:

Answer:

CA a. accounts receivable
CL b. accounts payable
SE c. treasury stock
N d. sales 
CA e. supplies
LTA f. patents
CL g. accrued expenses
SE h. common stock
LTL i. bonds payable
LTA j. accumulated depreciation
N k. cost of inventory sold
CL l. unearned revenues

Solutions:

457000

Solutions:
 1. Borrow money from the bank - Cash is increased
NA   2. Pay cash for inventory to sell to the customers - Cash down and inventory up
            for the same amount 
I       3. Issue common stock to investors – Cash increased
I       4. Purchase a truck for company use, agree to a notes payable - Truck 
            increases and a liability increases
D     5. Pay employees who worked this week - Cash down, expense incurred
NA   6. Receive the utility bill – it will be paid later No effect on asset until paid
I      7. Sell goods to a customer on account Inventory decreases and accounts 
           receivable increases more than the inventory cost (sell for more than cost).
NA  8. Pay for insurance for the next 6 months. Cash decreases and prepaid
           insurance increases the same amount
NA  9. Use cash to make an investment to be held long term 
           Traded one asset for another – cash for investment
D  10. Purchase the company’s own stock from investors
           Cash decreases and treasury stock an owner’s equity decreases

question

The following items were taken from the accounting records of a company as of
December 31st.

Building 209,000 Accrued Expenses 9,000

Cash 35,000  Short term notes payable 135,000
Computer Equipment 26,000  Common Stock 200,000
Retained Earnings ??  Bonds Payable 75,000
Prepaid Expenses 12,000  Accumulated depreciation 72,000
Sales 123,000  Dividends paid 10,000
Depreciation Expense 18,000  Unearned Revenue 8,000
Accounts Payable 47,000  Long-term Notes Receivable 35,000
Interest Payable 1,000  Long Term Debt 100,000
Cost of Goods Sold 75,000  Goodwill 125,000
Long term Investments 80,000  Treasury Stock 15,000
Inventory 56,000  Short Term Investments 50,000
Accounts Receivable 42,000  Trademark, net 6,000

Prepare a balance sheet in proper format for the company as of December 31st

14. During the first month of business the company had the following transactions:
1) issued stock to investors for $100,000
2) purchased inventory on account for $35,000
3) sold inventory that cost $29,000 to customers on account for $45,000
4) workers will be paid $10,000, they are paid the first of the following month
5) received the utility bill for $225
6) loaned a customer $10,000 to be repaid in 2 years 
7) paid $30,000 for the inventory purchased on account
8) purchased computer equipment for $2,000 cash – recorded depreciation 
expense of $56 for the month

Prepare a balance sheet in proper format as of January 31st

Question:

15. Following is a list of the accounts for XYZ Company as of December 31st.
This is not the company’s first year of operations.
A. Determine the total amount of assets expected to be converted into cash in one year or less.

B. Determine the total amount of long term assets and the amount within each category of long term
assets.

C. Determine total current liabilities

D. Determine total long term liabilities

E. Determine the amount of retained earnings.

Solutions:

Prepare a balance sheet in proper format for the company as of December 31st

To find retained earnings, you first make total liabilities and owner’s equity the same amount as total
assets. The two amounts have to be the same. You then subtract total liabilities from total liabilities
and owner’s equity to get what total owner’s equity must be. Add treasury stock and subtract
common stock from total owner’s equity to get the retained earnings amount.

Do not forget to subtotal and total. This is very important and will cost you points.

Revenues and Expenses do not go on the balance sheet. Dividends paid is not reported on the
balance sheet, it is a part of retained earnings and is not shown separately

14. During the first month of business the company had the following transactions:
1) issued stock to investors for $100,000
2) purchased inventory on account for $35,000
3) sold inventory that cost $29,000 to customers on account for $45,000
4) workers will be paid $10,000, they are paid the first of the following month
5) received the utility bill for $225
6) loaned a customer $10,000 to be repaid in 2 years 
7) paid $30,000 for the inventory purchased on account
8) purchased computer equipment for $2,000 cash – recorded depreciation 
expense of $56 for the month

Prepare a balance sheet in proper format as of January 31st.

Solution

.
Question:

3. For each of the following accounts, indicate where the account is reported on the 
balance sheet.

CA - Current asset PPE - Property, Plant, Equipment SE - Stockholder’s Equity

CL - Current liability LTL - Long term liability INT – Intangible Asset
LTLA – Long Term Liquid Asset N - Not reported on the balance sheet

______1. retained earnings

______2. computer equipment
______3. land
______4. amount paid above fair market value of assets purchased
______5. amounts borrowed from investors to be repaid in 10 years
______6. amounts due from customers
______7. cash received prior to providing the service
______8. expenses not yet paid
______9. amounts paid prior to receiving the service
_____10. additional paid in capital
_____11. long term debt due in 5 years
_____12. amounts owed to employees
_____13. accumulated depreciation
_____14. goods held for sale to customers
_____15. depreciation expense
_____16. portion of long term debt to be repaid in less than one year
_____17. notes payable due in 5 years
_____18. notes receivable due in 6 months
_____19. investments in the company’s own stock
_____20. land held indefinitely as a speculative investment

Solution:
SE 1. retained earnings
PPE 2. computer equipment
PPE 3. land
INT 4. amount paid above fair market value of assets purchased - GOODWILL
LTL 5. amounts borrowed from investors to be repaid in 10 years – BONDS PAY
CA 6. amounts due from customers - ACCOUNTS RECEIVABLE
CL 7. cash received prior to providing the service UNEARNED REVENUE
CL 8. expenses not yet paid ACCRUED EXPENSES
CA 9. amounts paid prior to receiving the service PREPAID EXPENSE
SE 10. additional paid in capital
LTL 11. long term debt due in 5 years
CL 12. amounts owed to employees SALARIES PAYABLE
PPE 13. accumulated depreciation Contra asset to PPE
CA 14. goods held for sale to customers INVENTORY
N 15. depreciation expense
CL 16. portion of long term debt to be repaid in less than one year
LTL 17. notes payable due in 5 years
CA 18. notes receivable due in 6 months
SE 19. investments in the company’s own stock TREASURY STOCK
LTLA 20. land held indefinitely as a speculative investment L/T INVESTMENT

Question