MBATricks

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Finance :: Balance Sheet

 

The Balance Sheet is one of the company official documents. It is a snapshot of the financial conditions of a company at one point in the time (i.e. Balance Sheet as of 31 December 2008).

 

The Balance sheet is a 4 quadrants table:

1) All the short term/current assets of the company

2) All the long term/fixed assets of the company

3) All the short term/current liabilities of the company

4) All the long term/fixed liabilities of the company and the owner equity

 

The Asset column has an equivalent value as the Liabilities + Equity column.

Assets = Liabilities + Owners’ Equity

 

 

Assets are anything in a business that can be converted to cash. Short Term/Current asset can be converted in less than a year whereas long term/Fixed assets are convertible to cash in more than a year.

 

Liabilities are the money owned outside the organization. Short Term/current liabilities should be reimbursed in less than a year whereas Long Term/Fixed liabilities are supposed to be reimbursed in more than a year.

 

 

Assets

Liabilities + Equity

< 365 days
(Short Term/Current)
+ Cash

+ Accounts Receivable (AR)

+ Prepaid expense

+ Inventory:
* Raw material
* Work in progress
* Finished goods

+ Notes Payables (NP)

+ Accounts Payable (AP)

+ Short Term Bank Loans

+ Accrued expenses/wages

> 365 days
(Long Term/Fixed)
+Property, Plant & Equipment (PPE)
– Accumulated depreciation
————————————–
= PPE Net

+ Goodwill

+ Long Term debts

+ Preferred Stocks (PS)

+ Common Stakeholders’ equity:
* Common Stock
* Retained Earnings

 

 

1. CURRENT ASSETS (less than a year)

Cash is old fashioned money

Accounts Receivable (AR) is the money that is going to be paid by the company’s customers for products/services they purchased

Prepaid expense is an expense that was already paid, thus creating value for the company

Inventory is all the raw material, the not finished products and the finished products of the company

 

2. FIXED ASSETS (more than a year)

Property, Plant & Equipment (PPE) is the real estate and the equipment owned by the company

Goodwill is the perceived value of the company if it were to be sold.

 

3. CURRENT LIABILITIES (less than a year)

Account Payable (AP) are all the bills to be paid

Note Payable (NP) are all the loans that the company will reimburse (in less than a year)

Accrued expenses/wages are the money known as due in the coming year

 

4. FIXED LIABILITIES (more than a year)

Long Term debts are the debt the company will reimburse in more than a year

Preferred Stocks (PS) are the shares sold by the company to individuals or organization. They are entitled to capital appreciation and dividends (coming from the retained earnings). They have priority (compared to Common Stocks to be reimbursed if the company goes bankrupted). As they take less risks than Common Stocks holders, less profit can be expected from these stocks

Common Stocks (CS) are like Preferred Stocks (PS) but are more stable. They may not be entitled to dividends and have less priority for reimbursement if the company goes bankrupted. As they take more risks the expected, more profit can be expected from these stocks

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