Business Accounting: Balance Sheet

Pengantar oleh Data Kuliah Crews:

MODULE 1

THE BALANCE SHEET

 
In order to achieve a standardized system, the accounting process follows accounting principles and rules. Regardless of the type of business or the amount of money involved, common procedures for handling and presenting financial information are used. Incoming money (revenues) and outgoing money (expenditures) are carefully monitored, and transactions are summarized in financial statements, which reflect the major financial activities of an organization. Two common financial statements are the balance sheet and the income statement. The balance sheet shows the financial position of a company at one point in time, while the income statement shows the financial performance of a company over a period of time. Financial statements allow interested parties to compare one organization to another and/or to compare accounting periods within one organization. For example, an investor may compare the most recent income statements of two corporations in order to find out which one would be a better investment.
Specifically, the balance sheet shows the interested parties information about the company's assets and liabilities. The assets deal with anything of value that a business owns which can be given a monetary value. There are two types of assets: current assets, like cast accounts receivable, inventories; and fixed assets including property, building, and equipment. The liabilities are debts owed or an obligation incurred by an organization, e.g., accounts payable, bonds, long-term notes. They are usually separated into current and long-term categories for purposes of the accounting function. Beside, the assets and liabilities, the balance sheet shows also the equities-the company's profits that are given to the stockholders.
Through effective application of commonly accepted accounting systems, private, public, and governmental accountants provide accurate and timely financial information that is necessary for organizational decision-making.
 

Miles Laboratories, Inc., Year Ended December 31, 2007 Balance Sheet (all figures in millions)
Assets Current Assets Cash Accounts Receivable Inventories Total Current Assets   Investments   Fixed Assets Buildings Equipment Total Fixed Assets Total Assets	$ 55.500 $ 3.500 $ 61.000 $120.000   $ 50.000     $ 50.000 $ 25.000 $ 75.000 $245.000	Liabilities Current Liabilities Bank Loans Accounts Payable Taxes on Income Total Current Liabilities Long-term liabilities Bonds Long-term notes Total Long-term liabilities Shareholders' Equity Common Stock Retained Earnings Total Shareholders' Equity Total Liabilities and Shareholders' Equity	$ 42.000 $ 45.000 $ 13.000 $ 100.000   $ 35.000 $ 30.000 $ 65.000   $ 21.000 $ 14.000 $ 35.000 $ 245.000

 
•  Read the passage carefully and the questions below.
•  How is a standardized accounting system achieved?
•  What are revenues and expenditures?
•  What do the balance sheet and the income statement have in common? How are they different?
•  How might the information contained in financial statements be useful to managers?
•  How might creditors use this information?
•  What are some management decisions that might be based on accounting information?
 
•  Look at the terms in the left-hand column and find the correct synonyms or definitions in the right-hand column. Copy the corresponding letters in the blanks.
 

TERMS	DEFINTIONS
•  property •  equal •  condition •  detail •  accounting equation •  monetary •  process •  express	•  assets equal liabilities plus owners' equity •  provide information item by item •  indicate by words or symbols •  have the same value as •  a series of transactions, changes, or functions that bring about a particular result •  the existing clrcum8tance •  anything owned by a person •  of or pertaining to money

 
 
•  Discuss the following questions with a partner. In giving your answers, try to use the italicized terms.
•  What is the difference between accounts receivable and accounts payable ?
•  Why are accounts receivable and cash considered current assets while property and equipment are considered fixed assets ? What do you think the difference is between current and fixed assets?
•  The owners' equity in a company equals assets minus liabilities. What is meant by owners' (or stockholders') equity ?
•  If you were a manager, how would you use the balance sheet to evaluate your company's financial condition ?
•  What do you consider your personal assets ? Do you have any liabilities ? What are they?
 
 
•  Using the information in the reading, solve the following problems. Give reasons to support your answers.
•  Which of the following is not a fixed asset: office equipment, machinery, marketable securities, land, and buildings? Why?
•  Divide these liabilities into current and long-term: bank loans payable, accounts payable, mortgage bonds payable, taxes payable and long-term notes payable.
•  If the assets of a company are $140,017 and its liabilities total $74,215, what is the owners' (or stockholders') equity? Explain how you arrive at this answer.
•  The fundamental accounting equation for Burns Manufacturing Co. is:
Assets = Liabilities + Owners' Equity
$40,000 = $0 + $40,000
In the business's next transaction, the owner borrows $8,000 from the local bank in the form of a loan. Which of the following statements accurately describes the effect of this transaction on the accounting equation?
•  Assets would increase by $8,000 and owners' equity would decrease by $8,000.
•  Both assets and liabilities would decrease by $8,000.
•  Assets would increase by $8,000 and liabilities would increase by $8,000.
•  Liabilities would increase by $4,000 and owners' equity would increase by $4,000.
•  Equity is the amount of money that remains when liabilities are subtracted from assets (assets minus liabilities). Why is there a distinction made between owners' equity and stockholders' equity?
 
 
 
 
E. Study the figure below.

 
•  Scan the figure to answer these questions.
•  What is the long-term debt for Miles Laboratories, Inc.?
•  How much are the total current assets of this company? The total fixed assets? ______________ The total assets?
•  Which current liability equals $5,613,000?
•  Which type of asset is the highest current asset? ________________
 
2. Refer to the same figure to answer these questions.
•  There is no total given for long-term liabilities in this balance sheet. Which three categories should be added together to get this total? What are the total long-term liabilities?
•  What is the accounting equation for Miles Laboratories, Inc. on December 31, 1974? (Assets Liabilities + Owners' Equity)
____________ = ____________ + ____________
•  If Miles Laboratories, Inc. sells $50,000 in stock in order to raise capital for a new warehouse, which figures in the balance sheet must be changed?
•  Which one of the items listed under shareholders' equity must be subtracted from the total shareholders' equity rather than added to it?
 
F. Substitute appropriate terms for the italicized words or phrases in the sentences below.
Status agencies monitored maintain independently
procedure fee hire rigorous solely

1. Many accounting departments have strict entrance requirements; only the most qualified applicants are allowed to enter these programs. ___________.
2. The particular method used to process employee insurance claims may vary from company to company. ___________.
3. The stock market is closely watched every day. ___________.
4. Rather than expand into foreign lines, the dress shop manager chose to deal only with domestic fashion designers. ___________.
5. Although the consultant's charge for services was high, his guidance and advice were well worth the money. ___________.
6. The financial condition of a company is reflected in its financial statements. _____________
7. When the business began to expand, a second bookkeeper was brought in to help keep the books. ________________
8. In the United States there are numerous organizations that provide services at the local, state, and national levels. _______________

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Business Accounting: Balance Sheet

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