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CHOOSING A COMPUTER ACCOUNTING PROGRAM
BALANCE SHEET
By Bruce J. Blanding
The
basic accounting equation, Assets = Liabilities + Capital, is represented
on the Balance Sheet. Figure 5-1, below, is an example of a Balance Sheet.
Notice the date at the top. On the Profit and Loss Statement, the dates
covered a period of time. The Balance Sheet, on the other hand, represents
the balance in asset, liability, and capital accounts at a specific time.
The Balance Sheet is like a snapshot of that business.
Assets
Anything of value owned or due the company is
considered an asset. Generally, on the Balance Sheet, assets are divided
into current assets and fixed assets.
Current Assets
Cash and resources that can be easily converted
into cash within one year are considered current assets. The cash entry on
the Balance Sheet includes all cash the business has on hand and in demand
deposits (bank accounts).
Accounts Receivable are the current
amounts owed to the business by customers for credit purchases. This figure
should be adjusted downward slightly to allow for bad debts or accounts
that will turn out to be uncollectible.
Inventory consists of the merchandise
currently available for sale as of the date of the Balance Sheet.
Figure 5-1 ABC Company, December
31, 200-
Balance Sheet Current Assets: Cash $ 2,320 Accounts Receivable 1,460 Inventory 9,320 Prepaid Expenses 300 ________ Total Current Expenses $13,400 Fixed Assets: Delivery Equipment 15,000 Furniture & Fixtures 4,600 _______ Total Fixed Assets 19,600 ________ Total Assets $33,000 Liabilities: Accounts Payable $ 6,430 Notes Payable 2,320 Payroll Tax Payable 150 Sales Tax Payable 1,900 ________ Total Liabilities $10,800 Capital: Owner's Equity 22,200 ________ Total Liabilities & Capital $33,000
Prepaid
expenses include items normally considered as expenses, but since they are
paid in advance, they are considered temporarily as assets. This happens
frequently with insurance, rent, and similar expenses usually paid in
advance. Total current assets is the sum of the entries in this category.
Fixed Assets
Fixed Assets, frequently referred to as Plant
and Equipment, are the resources a business owns or acquires for use in
operations and does not intend to sell. Land is listed at its original
purchase price, with no allowance for appreciation or depreciation. Other
fixed assets are listed at cost, less depreciation. The amount shown on the
Balance Sheet for the fixed assets should be "net" figures. That
is to say, an asset account should be adjusted, when appropriate, to
reflect the balance after accumulated depreciation is taken away.
Total fixed assets is the sum of the
accounts listed in this category. Total Assets is then derived by adding
Total Current Assets and Total Fixed Assets. Remember, the Total Assets
figure will be equal to the combined total of Liabilities and Capital.
Liabilities
Liabilities, like assets, are normally presented
in two categories. These categories are "Short-Term Liabilities"
and "Long-Term Liabilities" with the difference generally being a
due date of up to a year for short-term and more than a year for long-term.
(In the example, liabilities are simply presented in the general category.)
The most common liability account is
Accounts Payable, the debt owed by buying services and merchandise on
credit. In the Ledger several separate supplier accounts probably would be
maintained, and the Accounts Payable entry on the Balance Sheet is the
total of those debts.
Notes Payable refers to promissory notes
or loans owed by the business. Payroll Tax Payable is an account that
recognizes the amount owed, but not yet paid, from withholding taxes from
employee pay. Sales Tax, similarly, represents the amount of sales tax
collected on sales, but not yet paid.
Total liabilities is computed by adding
all the account balances.
Capital
Capital is the difference between Assets and
Liabilities. In the example, the Capital would be:
Capital = Assets - Liabilities Capital = $33,000 - $10,800 Capital = $22,200
The
figure $22,200 represents the owner's equity in the business at the time
the Balance Sheet was prepared. The Balance Sheet can then be completed by
entering the capital figure and adding it to Liabilities to determine Total
Liabilities and Capital.
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CHOOSING A COMPUTER ACCOUNTING PROGRAM
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