CHAPTER 9 THE BALANCE SHEET

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

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

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

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

Marketable securities 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

Assets Current assets Cash Marketable securities 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

PROPERTY AND EQUIPMENT Assets used in operations to produce revenues 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

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

Liabilities Current Liabilities Accounts payable 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

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 $6,400

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

Shareholder’s Equity Preferred Stock Common Stock Retained Earnings Treasury Stock

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

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).

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

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