![]() Current portion of long-term debt: Any repayment on long-term debt due within the year.Taxes are often shown separately when they are a large amount. Income taxes payable: Taxes owed for the current operating period but not yet paid.Accrued expenses: Expenses, typically for wages and taxes, that have accumulated and must be paid at a specified future date within the year although the firm has not received a bill.For example, Delicious Desserts has a six-month, $15,000 loan from its bank that is a note payable. Notes payable: Short-term loans from banks, suppliers, or others that must be repaid within a year.This account is the liability counterpart of accounts receivable. Accounts payable: Amounts the firm owes for credit purchases due within a year.These short-term claims may strain the firm’s current assets because they must be paid in the near future. Those liabilities coming due sooner-current liabilities-are listed first on the balance sheet, followed by long-term liabilities.Ĭurrent liabilities are those due within a year of the date of the balance sheet. Liabilities are the amounts a firm owes to creditors. Delicious Desserts’ other tangible asset is goodwill of $7,000. Goodwill occurs when a company pays more for an acquired firm than the value of its tangible assets. One of Delicious Desserts’ intangible assets is a trademark valued at $4,500. Trademarks are registered names that can be sold or licensed to others. For instance, no one can use more than a small amount of copyrighted material without permission from the copyright holder. Patents and copyrights shield the firm from direct competition, so their benefits are more protective than productive. Common examples are patents, copyrights, trademarks, and goodwill. Intangible assets are long-term assets with no physical existence. Notice that, through 2018, Delicious Desserts has taken a total of $16,000 in depreciation on its bakery equipment. They are based on past experience with similar items or IRS guidelines for assets of that type. Because it is impossible to know exactly how long an asset will last, estimates are used. This practice helps match the asset’s cost against the revenues it provides. A portion of the cost of a depreciable asset-a building or piece of equipment, for instance-is charged to each of the years in which it is expected to provide benefits. Depreciation is the allocation of the asset’s original cost to the years in which it is expected to produce revenues. This declining value is accounted for through depreciation. Except for land, fixed assets wear out and become outdated over time. They tend to be used in production and include land, buildings, machinery, equipment, furniture, and fixtures. Inventory: Stock of goods being held for production or for sale to customersįixed assets are long-term assets used by the firm for more than a year.Notes receivable: Amounts owed to the firm by customers or others to whom it lent money.Accounts receivable: Amounts owed to the firm by customers who bought goods or services on credit.Marketable securities: Temporary investments of excess cash that can readily be converted to cash.They also represent the amount of money the firm can quickly raise. They are important because they provide the funds used to pay the firm’s current bills. Current assets are assets that can or will be converted to cash within the next 12 months. Table 14.1: Balance Sheet for Delicious DessertsĪssets can be divided into three broad categories: current assets, fixed assets, and intangible assets. The three main categories of accounts on the balance sheet are explained below. The basic accounting equation is reflected in the three totals highlighted on the balance sheet: assets of $148,900 equal the sum of liabilities and owners’ equity ($70,150 + $78,750). The balance sheet as of December 31, 2018, for Delicious Desserts, Inc., a fictitious bakery, is illustrated in (Figure). ![]() ![]() Liabilities are arranged similarly: liabilities due in the short term are listed before those due in the long term. Buildings, on the other hand, have to be sold to be converted to cash, so they are listed after cash. Because cash is the most liquid asset, it is listed first. The most liquid assets come first, and the least liquid are last. ![]() The assets are listed in order of their liquidity, the speed with which they can be converted to cash. It reports the resources of a company (assets), the company’s obligations (liabilities), and the difference between what is owned (assets) and what is owed (liabilities), or owners’ equity. The balance sheet, one of three financial statements generated from the accounting system, summarizes a firm’s financial position at a specific point in time.
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