Overview

The Balance Sheet

The Balance Sheet (or Statement of Financial Position / Condition) is so named because it represents the following equation:

LIABILITIES Amounts owed to outside creditors + EQUITY Also called Net Worth   = ASSETS Resources of the business

At any point in time this basic equation holds, although the amounts assigned to the individual elements will fluctuate.

Assets increase or decrease as resources are obtained, disposed of, become less valuable, or become used up (expensed) in the course of operations. In limited circumstances, increases in value are also reflected in the recorded amounts of assets.

Liabilities increase or decrease as obligations are incurred or liquidated. In some cases, the amounts of liabilities may need to be estimated and are subject to adjustment (upward or downward) in late periods. In limited circumstances, recorded liabilities are contingent upon the occurrence of future events, and may not come to pass at all.

Equity increases or decreases primarily as a result of income or loss from operations of the business. It also increases when the owners contribute capital to the business, and decreases when the capital is withdrawn or dividends are paid.

ABC Corporation
Balance Sheet
December 31, current and previous year

Assets

current year   previous year Current Assets         Cash and cash equivalents   $ 377,000   $ 314,000     Accounts receivable, less allowance for doubtful accounts                 of $12,500 and 58,400 in 1995 and 1994, respectively   1,178,000   1,175,000     Inventories   458,000   424,000     Prepaid expenses   142,000   153,000                 Total current assets   2,155,000   2,066,000       Investments   137,000   115,000       Property, Plant and Equipment             Inventories   1,000,000   1,000,000     Buildings and improvements   1,602,000   1,292,000     Machinery and equipment   10,447,000   9,957,000                       Total property, plant and equipment   13,049,000   12,249,000     Less accumulated depreciation   (3,906,000)   (3,660,000)                       Net property, plant and equipment   9,143,000   8,589,000 Other Assets   201,000   234,000                       Total Assets   $ 11,636,000   $ 11,004,000     ===========   ===========

Liabilities and Stockholders' Equity

Current Liabilities             Notes payable   $ 110,000   $ 110,000     Current maturities of long-term debt   261,000   282,000     Accounts payable   809,000   796,000     Income taxes payable   200,000   200,000     Accrued expenses                 Salaries and wages   339,000   311,000         Interest   205,000   125,000                       Total current liabilities   1,924,000   1,824,000       Long-Term Debt, less current maturities   2,302,000   1,824,000       Deferred Income Taxes   2,171,000   1,854,000       Stockholders' Equity             9.5% cumulative preferred stock, par value, $10 per share,                 36,000 shares authorized and outstanding   360,000   360,000     Common stock, no par value, 1,000,000 shares authorized,                 150,000 shares and 146,000 shares issued                 this year and last year,                 respectively, Including shares held In treasury   150,000   146,000     Additional paid-In capital   1,639,000   1,575,000     Retained earnings   3,120,000   2,809,000     Less cost of common stock held in treasury - 4,400 shares   (30,000)   (30,000)                       Total stockholders' equity   5,239,000   4.860,000                       Total liabilities and stockholders' equity   $11,636,000   $11,004,000     ===========   ===========

The Balance Sheet in Greater Detail

Investments can include common stock as well as property held for future development or other assets not presently used in the company's operations.

Property, Plant and Equipment are assets of a durable nature used in the regular operations of the business.

Accumulated Depreciation is the aggregate of charges against earnings to write-off (or amortize) the cost of an asset over its estimated useful life. It is the result of a bookkeeping entry and does not represent any current cash outlay.

Other Assets may consist of intangibles. such as goodwill, patents or trademarks; assets, such as the cash surrender value of life insurance; prepaid expenses, including unexpired multi-year insurance premiums; and such deferred charges as organization costs or start-up and reopening costs.

In certain industries, such as construction and real estate, assets are often presented without being classified in the categories shown in this example.

Current Liabilities are those obligations that are reasonably expected to be liquidated or paid through the use of current assets These liabilities generally include notes payable, current maturities of long-term debt, accounts payable, income taxes payable and accrued expenses such as salaries payable and interest payable

Long-Term Debt is debt less current maturities and includes those obligations that are not expected to be paid within one year Bonds and mortgages are common long-term liabilities.

Deferred Income Taxes result from differences between taxable income and accounting income. Common items giving rise to deferred income taxes include depreciation methods that are allowed by tax law but do not match the estimated useful life of the asset, deferred compensation plans that are not deductible until paid but give rise to currently reported expense, and certain prepaid income such as rent received by the business, which is deferred to later periods for accounting purposes, but which is taxed currently.

Common Stock And Preferred Stock, if any. represent the ownership interests in a corporation. The preferred stock will have preferential rights as to dividends or in the event of liquidation of the business. Common stock represents the residual ownership interest.

Additional Paid-In Capital is the difference between the amount of money obtained by a corporation on the issuance of its own stock and the par value of the stock.

Retained Earnings are the portions of all the company's past earnings that were not distributed to the stockholders as dividends.

Treasury Stock is stock that was once issued by the company but later was reacquired. Treasury stock receives no dividends and has no vote while held by the company.

Total Liabilities And Stockholders' Equity is always equal to total assets.