- Identify proper financial statement presentation of plant assets
The balance sheet we learned at the beginning of the course in both the report form (assets are first and liabilities and equity are below) and the account form (side-by-side was fairly simple and straightforward. Balance sheets produced by publicly traded companies contain a lot of information and are almost always in the report form. Like the multi-step income statement, they follow a certain format that includes subtotals. The classified balance sheet groupings and subtotals make the balance sheet easier for investors to read and analyze. The classified balance sheet still proves the accounting equation but it separates assets and liabilities into the following subgroups:
- Current Assets: Can be converted to cash within a year or within the operating cycle, whichever is longer. Current assets include cash, accounts receivable, interest receivable, supplies, inventory, and other prepaid expenses.
- Long-Term Investments: Investments that are not due for more than a year are reported in this section. Long-term investments would include notes receivable or investments in bonds or stocks.
- Plant Assets: Plant assets (also called PP&E or fixed assets) refer to property that is tangible (can be seen and touched) and is used in the business to generate revenue. Plant assets include depreciable assets and land used in the business. The plant asset is recorded with its accumulated depreciation (if any) subtracted below it to get the asset’s book value.
- Intangible Assets: Intangible assets are items that have a financial value but do not have a physical form. These would be things like trademarks, patents, and copyrights.
- Current Liabilities: Like current assets, these are liabilities whose payment are due within a year or within the operating cycle, whichever is longer. Current liabilities include accounts payable, salaries payable, taxes payable, unearned revenue, etc.
- Long-Term Liabilities: Liabilities due more than a year from now would be reported here, including notes payable, mortgage payable, bonds payable, etc.
As an example, here is the classified balance sheet for Home Depot, Inc. Look through it and identify the various subgroups we just discussed for the assets and liabilities on a classified balance sheet.
|in millions, except per share data||February 2, 2020||February 3, 2019|
|Subcategory, Current Assets:|
|Cash and cash equivalents||$ 2,133||$ 1,778|
|Merchandise inventories||14,531||13,925||Other current assets||1,040||890|
|Total current assets||Single line
|Net property and equipment||22,770||22,375|
|Operating lease right-of-use assets||5,595||—|
|Total assets||Single line
|Category, Liabilities and Stockholders’ Equity|
|Subcategory, Current liabilities:|
|Short term debt||$ 974||$ 1,339|
|Accured salaries and related expenses||1,494||1,506||Sales taxes payable||605||656||Deferred revenue||2,116||1,782||Income taxes payable||55||11||Current installments of long-term debt||1,839||1,056||Current operating lease liabilities||828||—||Other accrued expenses||2,677||2,611|
|Total current liabilities||Single line
|Long-term debt, excluding current installments||Single line28,670||Single line26,807|
|Long-term operating lease liabilities||5,066||—|
|Deferred income taxes||706||491|
|Other long-term liabilities||1,535||1,867|
|Total liabilities||Single line
|Single line||Single line|
|Common stock, par value $0.05; authorized 10,000 shares; issued: 1,786 shares at February 2, 2020 and 1,782 shares at February 3, 2019; Outstanding: 1,077 shares at February 2, 2020 and 1,105 shares at February 3, 2019||89||89|
|Accumulated other comprehensive loss||(739)||(772)|
|Treasury stock, at cost, 709 shares at February 2, 2020 and 677 shares at February 3,2019||(65,196)||(58,196)|
|Total stockholders’ (deficit) equity||Single line
|Total liabilities and stockholders’ equity||Single line
|Note See accompanying notes to consolidated financial statements|
Now, try out what you learned: