CHAPTER 9

1. CHAPTER 9 THE BALANCE SHEET

2. Outline • The Balance Sheet • Balance Sheet Formats • The Classified Balance Sheet • Assets • Liabilities • Shareholders’ Equity • Statement of Retained Earnings

3. The Balance Sheet • A basic financial statement • Reports the financial status of a company at a point in time • Includes assets, liabilities and shareholders’ equity accounts • A classified balance sheet provides users useful information concerning the firm’s financial position of the company

4. Balance Sheet Formats • Account Format (the two parts are presented side by side) • Report Format (the two sides are presented one under the other)

5. The Classified Balance Sheet ASSETS, LIABILITIES, AND EQUITY ACCOUNTS ARE CLASSIFIED INTO ACCOUNT CATEGORIES Assets Liabilities Current Liabilities Current Assets Long-term Liabilities Property and Equipment Other Other Assets

6. Current Assets • Cash and other items that can be converted into cash or consumed by the business within one year from the balance sheet date, such as: Cash Marketable securities Accounts Receivable Inventories Prepaid expenses

7. Hospitality Sample Firm Co., Inc. Balance Sheet December 31, 2007 In thousands of dollars Assets Current assets Cash Marketable securities Accounts receivable, less allowance for doubtful accounts of $420 Inventories Prepaid expenses Total current assets $4,080 600 2,060 2,200 1,300 $10,240

8. PROPERTY AND EQUIPMENT Assets used in operations to produce revenues Property and Equipment Land Buildings Furniture, fixtures, and equipment Total property and equipment Less: accumulated depreciation Net property and equipment $16,800 73,000 20,100 109,900 14,100 $95,800

9. OTHER ASSETS Items with a future value which are not used in operations • Intangible assets: Goodwill, trademarks, patents, pre-opening expenses • Long-term investments: Investments in subsidiaries & restricted cash • Long-term receivables • Cash surrender value of officer’s life insurance

10. Liabilities Current Liabilities • Due within one year from balance sheet date Accounts payable Accrued Expenses-Interest, Salaries Current portion of long-term debt Notes Payable Income Tax Payable

11. $6,400 CURRENT LIABILITIES Current liabilities Current portion of long-term debt Account payable Income taxes payable Accrued expenses Total Current liabilities $ 3,000 1,400 200 1,800

12. Long Term Liabilities • Due after one year from balance sheet date Mortgages Payable (net of current portion) Bonds Payable Notes Payable

13. Shareholder’s Equity • Preferred Stock • Common Stock • Retained Earnings • Treasury Stock

14. Shareholders’ Equity • Ownership in Corp. • Voting rights • Potential dividends • Last to receive, in the event of bankruptcy of Corp. • Preferred shareholders have preferences on earnings and upon liquidation. • No voting rights • Preset dividend rate Common Stock Preferred Stock

15. RETAINED EARNINGS • Accumulated net income that has not been distributed in the form of dividends • Separate statement of retained earnings indicates changes in retained earnings balance since previous period, due to existence of net income and dividends paid out (if any).

16. TREASURY STOCK • Stock re-acquired by the company • Reduces number of shares outstanding • Deduction from shareholders’ equity • Shown on balance sheet as a NEGATIVE value

17. Shareholders’ Equity Common Stock $3,650 Additional Paid in Capital 4,100 Retained Earnings 2,140 Less: Treasury Stock (1,000) Total Shareholders’ Equity$8,890