The Balance Sheet and
Financial Disclosures
I N T ERMEDIATE ACCOU N T I NG I
C H A PT ER 3
CLASSIFIED BALANCE SHEET
The classified balance sheet
presents assets, liabilities,
and equity broken down
by specific classifications.
Assets:
Current assets
Investments
Property, plant, and equipment
Intangible assets
Other assets
Liabilities:
Current liabilities
Long-term liabilities
Shareholders’ equity:
Paid-in capital
Retained earnings
CURRENT ASSETS
Current assets include cash and all other assets
expected to become cash or be consumed within one
year or the operating cycle, whichever is longer.
CURRENT ASSETS
Cash and Cash Equivalents
Cash Equivalents include liquid investments that have a maturity date of three months or less from the date of
purchase, such as commercial paper, money market funds, and U.S. Treasury bills.
Short-term Investments
Investments are classified as current if the company’s management
▶ intends to liquidate the investment in the next year or operating cycle, whichever is longer, and
▶ has the ability to do so, i.e., the investment is marketable.
Accounts Receivable
Amounts due from customers arising from the sale of goods or services on account
▶ valued net of allowance for uncollectible accounts.
Inventories
Consist of assets that a retail or wholesale company acquires for resale or goods that manufacturers produce for sale.
Prepaid Expenses
Arise when a cash payment creates benefits beyond the current period.
NONCURRENT ASSETS
Noncurrent assets are expected to last
longer than one year.
Investments

▶
▶
▶
▶
NONCURRENT ASSETS
Assets not used directly in the operations of the business including
Investments in equity and debt securities of other corporations
Land held for speculation
Cash set aside for special purposes (such as a compensating balance)
Noncurrent receivables
Property, Plant, and Equipment


▶
Tangible, long-lived assets used in the operations of the business.
Usually the primary revenue-generating assets of the business.
▶ Land, buildings, equipment, machinery, and furniture
Natural resources (such as mineral mines, and oil and gas wells)
Intangible Assets


▶
Lack physical existence.
Exclusive rights to something — a product, process, etc.
▶ Patents
▶ Franchises
Copyrights
▶ Goodwill
Other Assets

A catch-all classification that includes long-term prepaid expenses, called deferred charges,
and any noncurrent asset not falling in one of the other classifications.
LIABILITIES
Liabilities are probable future sacrifices of economic
benefits arising from present obligations of a particular
entity to transfer assets or provide services to other entities
in the future as a result of past transactions or events.
CURRENT LIABILITIES
Current liabilities are those obligations that are expected to
be satisfied within one year or the operating cycle,
whichever is longer.
CURRENT LIABILITIES
Accounts Payable


Obligations to suppliers of merchandise or services purchased on open
account.
Payment usually is due in 30 to 60 days.
Notes Payable


Written promises to pay cash at some future date.
Usually require the payment of explicit interest.
Unearned Revenues

Represent cash received from a customer for goods or services to be provided
in a future period.
Accrued Liabilities


Obligations created when expenses have been incurred but won't be paid until
a subsequent reporting period.
Examples include Salaries Payable and Interest Payable
Current Maturities of Long-term Debt

Amounts from long-term debt, such as mortgages, due in the current period
LONG-TERM LIABILITIES
Long-term liabilities are those obligations that are not
expected to be satisfied within one year or the operating
cycle, whichever is longer.
Examples include:
▶
Long-term notes
▶
Bonds
▶
Pension obligations
▶
Lease obligations
SHAREHOLDERS’ EQUITY
The shareholders' equity section of the balance sheet includes paidin capital (invested capital), retained earnings (earned capital) and
treasury stock.
Paid-in Capital
• Par Value of Preferred and/or Common Stock
• Paid-in capital in excess of par for Preferred and/or Common
Stock
Retained Earnings
• Earnings retained by the company rather than being distributed as
dividends
Treasury Stock
• Shares of stock re-acquired by a company
• Reduces total equity
RETAINED EARNINGS CALCULATION
Retained Earnings
Beginning Retained Earnings (as shown on the trial balance)
Add
Net Income (or Deduct Net Loss)
Deduct Dividends
Equals
Ending Retained Earnings (reported on the balance sheet)
DISCLOSURE NOTES
Disclosure notes explain or elaborate on the data presented in the financial statements.
Summary of
Significant
Accounting Policies
Conveys valuable information
about the company’s choices from
among various alternative
accounting methods.
Subsequent Events
A significant development that
occurs after the company’s fiscal
year-end but before the financial
statements are issued or available
to be issued.
Noteworthy Events
and Transactions
Transactions or events that are
potentially important to evaluating
a company’s financial statements,
e.g., related-party transactions,
errors and irregularities, and illegal
acts.
The Balance Sheet and
Financial Disclosures
I N T ERMEDIATE ACCOU N T I NG I – CHA PT ER 3
E N D OF P R ESENTATION