{"id":249,"date":"2018-09-24T15:11:40","date_gmt":"2018-09-24T15:11:40","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/suny-osintrobus\/chapter\/the-balance-sheet\/"},"modified":"2018-10-12T18:04:34","modified_gmt":"2018-10-12T18:04:34","slug":"the-balance-sheet","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-herkimer-osintrobus\/chapter\/the-balance-sheet\/","title":{"raw":"The Balance Sheet","rendered":"The Balance Sheet"},"content":{"raw":"
    \r\n \t
  1. In what terms does the balance sheet describe the financial condition of an organization?<\/li>\r\n<\/ol>\r\n

    The balance sheet<\/strong>, one of three financial statements generated from the accounting system, summarizes a firm\u2019s financial position at a specific point in time. It reports the resources of a company (assets), the company\u2019s obligations (liabilities), and the difference between what is owned (assets) and what is owed (liabilities), or owners\u2019 equity.<\/p>\r\n

    The assets are listed in order of their liquidity<\/strong>, the speed with which they can be converted to cash. The most liquid assets come first, and the least liquid are last. Because cash is the most liquid asset, it is listed first. Buildings, on the other hand, have to be sold to be converted to cash, so they are listed after cash. Liabilities are arranged similarly: liabilities due in the short term are listed before those due in the long term.<\/p>\r\n

    The balance sheet as of December 31, 2018, for Delicious Desserts, Inc., a fictitious bakery, is illustrated in (Figure)<\/a>.<\/strong> The basic accounting equation is reflected in the three totals highlighted on the balance sheet: assets of $148,900 equal the sum of liabilities and owners\u2019 equity ($70,150 + $78,750). The three main categories of accounts on the balance sheet are explained below.<\/p>\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
    Table 14.1: Balance Sheet for Delicious Desserts<\/th>\r\n<\/tr>\r\n
    Delicious Desserts, Inc.<\/th>\r\n<\/tr>\r\n
    Balance Sheet as of December 31, 2018<\/th>\r\n<\/tr>\r\n<\/thead>\r\n
    Assets<\/strong><\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    Current assets:\r\n
    <\/div>\r\nCash\r\n
    <\/div>\r\nMarketable securities\r\n
    <\/div>\r\nAccounts receivable\r\n
    <\/div>\r\nLess: Allowance for doubtful accounts\r\n
    <\/div>\r\nNotes receivable\r\n
    <\/div>\r\nInventory\r\n
    <\/div>\r\nTotal current assets<\/td>\r\n
    		\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n$45,000\r\n
    <\/div>\r\n1,300<\/u><\/td>\r\n
    		$15,000\r\n
    <\/div>\r\n4,500\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n43,700\r\n
    <\/div>\r\n5,000\r\n
    <\/div>\r\n15,000<\/u><\/td>\r\n
    		\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n83,200<\/td>\r\n<\/tr>\r\n
    Fixed assets:\r\n
    <\/div>\r\nBakery equipment\r\n
    <\/div>\r\nLess: Accumulated depreciation\r\n
    <\/div>\r\n
    <\/div>\r\nFurniture and fixtures\r\n
    <\/div>\r\nLess: Accumulated depreciation\r\n
    <\/div>\r\nTotal fixed assets\r\n
    <\/div>\r\nIntangible assets:\r\n
    <\/div>\r\nTrademark\r\n
    <\/div>\r\nGoodwill\r\n
    <\/div>\r\n
    <\/div>\r\nTotal intangible assets\r\n
    <\/div>\r\nTotal assets<\/td>\r\n
    		\r\n
    <\/div>\r\n$56,000\r\n
    <\/div>\r\n16,000<\/u>\r\n
    <\/div>\r\n
    <\/div>\r\n$18,450\r\n
    <\/div>\r\n4,250<\/u><\/td>\r\n
    		\r\n
    <\/div>\r\n
    <\/div>\r\n$40,000\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n14,200<\/u>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n$ 4,500\r\n
    <\/div>\r\n7,000<\/u><\/td>\r\n
    		\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n54,200\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n11,500<\/u>\r\n
    <\/div>\r\n$148,900<\/u><\/td>\r\n<\/tr>\r\n
    Liabilities and owners\u2019 equity<\/strong><\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    Current liabilities:\r\n
    <\/div>\r\nAccounts payable\r\n
    <\/div>\r\nNotes payable\r\n
    <\/div>\r\nAccrued expenses\r\n
    <\/div>\r\nIncome taxes payable\r\n
    <\/div>\r\nCurrent portion of long-term debt\r\n
    <\/div>\r\nTotal current liabilities<\/td>\r\n
    		\r\n
    <\/div>\r\n$30,650\r\n
    <\/div>\r\n15,000\r\n
    <\/div>\r\n4,500\r\n
    <\/div>\r\n5,000\r\n
    <\/div>\r\n5,000<\/u><\/td>\r\n
    		\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n$60,150<\/u><\/td>\r\n
    		<\/td>\r\n<\/tr>\r\n
    Long-term liabilities:\r\n
    <\/div>\r\nBank loan for bakery equipment\r\n
    <\/div>\r\nTotal long-term liabilities\r\n
    <\/div>\r\nTotal liabilities<\/td>\r\n
    		\r\n
    <\/div>\r\n$10,000<\/u><\/td>\r\n
    		\r\n
    <\/div>\r\n
    <\/div>\r\n10,000<\/u><\/td>\r\n
    		\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n$ 70,150<\/u><\/td>\r\n<\/tr>\r\n
    Owners\u2019 equity:\r\n
    <\/div>\r\nCommon stock\r\n
    <\/div>\r\n(10,000 shares outstanding)\r\n
    <\/div>\r\nRetained earnings\r\n
    <\/div>\r\nTotal owners\u2019 equity\r\n
    <\/div>\r\nTotal liabilities and owners\u2019 equity<\/td>\r\n
    		<\/td>\r\n\r\n
    <\/div>\r\n$30,000\r\n
    <\/div>\r\n
    <\/div>\r\n48,750<\/u>\r\n
    <\/div><\/td>\r\n
    		\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n
    <\/div>\r\n78,750\r\n
    <\/div>\r\n$148,900<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n
    \r\n

    Assets<\/h3>\r\n

    Assets can be divided into three broad categories: current assets, fixed assets, and intangible assets. Current assets<\/strong> are assets that can or will be converted to cash within the next 12 months. They are important because they provide the funds used to pay the firm\u2019s current bills. They also represent the amount of money the firm can quickly raise. Current assets include:<\/p>\r\n\r\n