1. One of the two main financial statements of a business… The other is the Income Statement.

2. Assets – Liabilities = Worth “have” “owe” “value to owners” Assets = Liabilities + Worth “have” “owe” “value to owners”

3. ASSETS CASH ACCOUNTS RECEIVABLE INVENTORY PREPAID EXPENSES CURRENT ASSETS OTHER ASSETS FIXED ASSETS AT COST ACCUMULATED DEPRECIATION NET FIXED ASSETS TOTAL ASSETS LIABILITIES & EQUITY ACCOUNTS PAYABLE ACCRUED EXPENSES CURRENT PORTION OF DEBT INCOME TAXES PAYABLE CURRENT LIABILITIES LONG-TERM DEBT CAPITAL STOCK RETAINED EARNINGS SHAREHOLDER’S EQUITY TOTAL LIABILITIES & EQUITY

4. LIABILITIES & EQUITY ACCOUNTS PAYABLEK ACCRUED EXPENSESL CURRENT PORTION OF DEBTM INCOME TAXES PAYABLEN CURRENT LIABILITIESK + L + M + N = O LONG-TERM DEBTP CAPITAL STOCKQ RETAINED EARNINGSR SHAREHOLDER’S EQUITYQ + R = S TOTAL LIABILITIES & EQUITYO + P + S = T

5. Liabilities are economic obligations of the enterprise, such as money that the corporation owes to lenders, suppliers, employees, etc. Liabilities are categorized and grouped for presentation on the balance sheet by: (1) to whom the debt is owed and (2) whether the debt is payable within the year (current liabilities) or is a long-term obligation. Shareholders’ equity is a very special kind of liability. It represents the value of the corporation that belongs to its owners. However, this “debt” will never be repaid in the normal course of business.

6. LIABILITIES & EQUITY ACCOUNTS PAYABLEK ACCRUED EXPENSESL CURRENT PORTION OF DEBTM INCOME TAXES PAYABLEN CURRENT LIABILITIESK + L + M + N = O LONG-TERM DEBTP CAPITAL STOCKQ RETAINED EARNINGSR SHAREHOLDER’S EQUITYQ + R = S TOTAL LIABILITIES & EQUITYO + P + S = T

7. Current liabilities are… bills that must be paid within ONE year of the date of the Balance Sheet. current assets… provide cash within 12 months. current liabilities… take cash within 12 months. Cash received from current assets is used to pay current liabilities. 1. accounts payable owed to suppliers. 2. accrued expenses owed to employees and others for services. 3. current debt owed to lenders. 4. taxes owed to government.

8. LIABILITIES & EQUITY ACCOUNTS PAYABLEK ACCRUED EXPENSESL CURRENT PORTION OF DEBTM INCOME TAXES PAYABLEN CURRENT LIABILITIESK + L + M + N = O LONG-TERM DEBTP CAPITAL STOCKQ RETAINED EARNINGSR SHAREHOLDER’S EQUITYQ + R = S TOTAL LIABILITIES & EQUITYO + P + S = T

9. Accounts payable: bills to other companies for materials and equipment bought on credit. Terms 30 or 60 days.

10. LIABILITIES & EQUITY ACCOUNTS PAYABLEK ACCRUED EXPENSESL CURRENT PORTION OF DEBTM INCOME TAXES PAYABLEN CURRENT LIABILITIESK + L + M + N = O LONG-TERM DEBTP CAPITAL STOCKQ RETAINED EARNINGSR SHAREHOLDER’S EQUITYQ + R = S TOTAL LIABILITIES & EQUITYO + P + S = T

11. Accrued Expenses Are monetary obligations similar to accounts payable. Examples of accrued expenses are salaries earned by employees but not yet paid to them, lawyers’ bills not yet paid, interest due but not yet paid on bank debt and so forth.

12. LIABILITIES & EQUITY ACCOUNTS PAYABLEK ACCRUED EXPENSESL CURRENT PORTION OF DEBTM INCOME TAXES PAYABLEN CURRENT LIABILITIESK + L + M + N = O LONG-TERM DEBTP CAPITAL STOCKQ RETAINED EARNINGSR SHAREHOLDER’S EQUITYQ + R = S TOTAL LIABILITIES & EQUITYO + P + S = T

13. If the company owes money to a bank and the terms of the load must be repaid in less than 12 months, the debt is called a note payable and is a current liability. A loan with an overall term of more than 12 months is called Long-term debt. A mortgage is an example.

14. LIABILITIES & EQUITY ACCOUNTS PAYABLEK ACCRUED EXPENSESL CURRENT PORTION OF DEBTM INCOME TAXES PAYABLEN CURRENT LIABILITIESK + L + M + N = O LONG-TERM DEBTP CAPITAL STOCKQ RETAINED EARNINGSR SHAREHOLDER’S EQUITYQ + R = S TOTAL LIABILITIES & EQUITYO + P + S = T

15. A percentage of the profit owed to government when a company sells something. Income Taxes Payable are incomes taxes company owes the government has not yet paid. Every three months, company will send government a check for income tax owed.

16. Current Assets – Current Liabilities = Working Capital “Good Thing” “Less Good Thing” “Great Thing” Cash Accounts Receivable Inventory Prepaid Expenses Accounts Payable Accrued Expenses Current Portion of Debt Income Taxes Payable Working Capital is the amount of money the company can “work with” in the short term. It is sometime called “net current assets” or “funds.”

17. Sources of working capital: 1. current liabilities decrease and/or 2. current assets increase Uses of working capital: 1. current assets decrease and/or 2. current liabilities increase With lots of working capital, you can pay your “current bills” come due in the next 12 months.

18. LIABILITIES & EQUITY ACCOUNTS PAYABLEK ACCRUED EXPENSESL CURRENT PORTION OF DEBTM INCOME TAXES PAYABLEN CURRENT LIABILITIESK + L + M + N = O LONG-TERM DEBTP CAPITAL STOCKQ RETAINED EARNINGSR SHAREHOLDER’S EQUITYQ + R = S TOTAL LIABILITIES & EQUITYO + P + S = T

19. Sum of its current liabilities and its long-term debt. Long-term debt include mortgages for land and buildings.

20. LIABILITIES & EQUITY ACCOUNTS PAYABLEK ACCRUED EXPENSESL CURRENT PORTION OF DEBTM INCOME TAXES PAYABLEN CURRENT LIABILITIESK + L + M + N = O LONG-TERM DEBTP CAPITAL STOCKQ RETAINED EARNINGSR SHAREHOLDER’S EQUITYQ + R = S TOTAL LIABILITIES & EQUITYO + P + S = T

21. Total assets – total liabilities = shareholders’ equity Shareholders’ equity has two components: 1. Capital stock: Original amount of money investors contributed in the stock of the company. 2. Retained earnings: All the earnings of the company that have been retained, not paid out as dividends to investors.

22. LIABILITIES & EQUITY ACCOUNTS PAYABLEK ACCRUED EXPENSESL CURRENT PORTION OF DEBTM INCOME TAXES PAYABLEN CURRENT LIABILITIESK + L + M + N = O LONG-TERM DEBTP CAPITAL STOCKQ RETAINED EARNINGSR SHAREHOLDER’S EQUITYQ + R = S TOTAL LIABILITIES & EQUITYO + P + S = T

23. The original money to start and any add-on money invested in the business is represented by shares of capital stock. Common stock is the regular denomination of ownership for all corporations. All companies issue common stock, but they may issue other kinds of stock.

24. LIABILITIES & EQUITY ACCOUNTS PAYABLEK ACCRUED EXPENSESL CURRENT PORTION OF DEBTM INCOME TAXES PAYABLEN CURRENT LIABILITIESK + L + M + N = O LONG-TERM DEBTP CAPITAL STOCKQ RETAINED EARNINGSR SHAREHOLDER’S EQUITYQ + R = S TOTAL LIABILITIES & EQUITYO + P + S = T

25. All of the company’s profits have not been returned to shareholders as dividends are called retained earnings. Retained earnings can be viewed as money from which future dividends could be paid. Dividends cannot be paid to shareholders unless sufficient retained earnings are on the Balance Sheet to cover the total amount of the dividend checks. Company has not made profit but rather has sustained losses, it has ‘negative retained earnings’, called accumulated deficit.

26. LIABILITIES & EQUITY ACCOUNTS PAYABLEK ACCRUED EXPENSESL CURRENT PORTION OF DEBTM INCOME TAXES PAYABLEN CURRENT LIABILITIESK + L + M + N = O LONG-TERM DEBTP CAPITAL STOCKQ RETAINED EARNINGSR SHAREHOLDER’S EQUITYQ + R = S TOTAL LIABILITIES & EQUITYO + P + S = T

27. Shareholders’ equity is the sum of investment made in the stock of the company plus any profits (less any losses) minus any dividends that have been paid to shareholders. Shareholders’ equity - increases when: 1. makes a profit. 2. sells new stock to investors. - decreases when 1. has a loss. 2. pays dividends to shareholders.

28. ASSETS CASH ACCOUNTS RECEIVABLE INVENTORY PREPAID EXPENSES CURRENT ASSETS OTHER ASSETS FIXED ASSETS AT COST ACCUMULATED DEPRECIATION NET FIXED ASSETS TOTAL ASSETS LIABILITIES & EQUITY ACCOUNTS PAYABLE ACCRUED EXPENSES CURRENT PORTION OF DEBT INCOME TAXES PAYABLE CURRENT LIABILITIES LONG-TERM DEBT CAPITAL STOCK RETAINED EARNINGS SHAREHOLDER’S EQUITY TOTAL LIABILITIES & EQUITY

29. Assets – Liabilities = Worth “have” “owe” “value to owners” Assets = Liabilities + Shareholders’ Equity “have today” “owe today” “worth today”