Finance And Accounting-How To Interpret A Balance Sheet (Lecture 26)
I. Balance Sheet Overview
Basic Accounting Equation
Assets = Liabilities + Equity
Current & Noncurrent
Assets and Liabilities are divided into current noncurrent. Current are things used or paid in one year. Noncurrent of course are to be used or paid in a period longer than a year.
1. Current Assets
Current assets are listed from the most liquid to the least liquid.
Generally the order is something like:
Cash & Cash Equivalents (Cash equivalents are risk free securities with a maturity date of 90 days or less, such as money market accounts, 3 month CDs and US Treasury Bills)
Marketable Securities (liquid assets such as publicly traded stocks and bonds)
Accounts Receivable (net of allowance for doubtful accounts)
Other Current Assets (look at the footnotes to see what these include)
2. Long-Term Assets
Property, Plant & Equipment (Recorded on the balance sheet at their original or historical costs, then depreciated over time)
Intangible Assets (include non-physical assets such as goodwill, brand names, trademarks, copyrights, and patents. According to GAAP guidlines, intangible assets are only listed on a company's balance sheet if they are acquired assets, ie purchased from another firm).
3. Liabilities
Note that the amount shown on the statement under long-term debt doesn't provide the exact maturity date, only that it is beyond 12 months. Look to the footnotes of the financial statements for a clearer picture about when the long-term debt actually comes due.
Also note that some debt a company has might not be listed on the balance sheet at all. The most common example of this off-balance sheet debt is operating leases.
Basic Accounting Equation
Assets = Liabilities + Equity
Current & Noncurrent
Assets and Liabilities are divided into current noncurrent. Current are things used or paid in one year. Noncurrent of course are to be used or paid in a period longer than a year.
1. Current Assets
Current assets are listed from the most liquid to the least liquid.
Generally the order is something like:
Cash & Cash Equivalents (Cash equivalents are risk free securities with a maturity date of 90 days or less, such as money market accounts, 3 month CDs and US Treasury Bills)
Marketable Securities (liquid assets such as publicly traded stocks and bonds)
Accounts Receivable (net of allowance for doubtful accounts)
Other Current Assets (look at the footnotes to see what these include)
2. Long-Term Assets
Property, Plant & Equipment (Recorded on the balance sheet at their original or historical costs, then depreciated over time)
Intangible Assets (include non-physical assets such as goodwill, brand names, trademarks, copyrights, and patents. According to GAAP guidlines, intangible assets are only listed on a company's balance sheet if they are acquired assets, ie purchased from another firm).
3. Liabilities
Note that the amount shown on the statement under long-term debt doesn't provide the exact maturity date, only that it is beyond 12 months. Look to the footnotes of the financial statements for a clearer picture about when the long-term debt actually comes due.
Also note that some debt a company has might not be listed on the balance sheet at all. The most common example of this off-balance sheet debt is operating leases.
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