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Balance sheet

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by

Phan Viên

on 27 February 2014

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Transcript of Balance sheet

Balance Sheet
Assets
Current assets
Cash & cash equivalents
Accounts receivable, net
Inventory
Short-term investment
Long-term Assets
Plant, property & equipment
Long-term investment
Total assets

Liabilities
Current liabilities
Account payable
Accrued liabilities
Unearned revenue
Short-term debts
Maturities of long-term debts
Long-term liabilities
Long-term debts
Total liabilities
Equity
Contributed capital
Earned capital
Total liabilities and equity

Assets = Liabilities + Equity
Accounts receivable
Accounts receivable are amounts due to the company by customers arising from the sale of products and services
AR are reported net of allowance for doubtful accounts
AR are unsecured debts, which means that customers have not pledged collateral to guarantee payments of amounts owed.
Inventory
Include:
Raw materials and supplies: Costs of direct materials and input to the production process.
Work-in-process: Costs of partly finished products
Finished goods: Costs of products that are completed and awaiting sale
Costs relating to inventory:
Financing cost (when inventory is not purchased on credit)
Storage cost (warehouse)
Handling cost (wages)
Insurance cost
PPE
Assets must be owned or controlled (capitalized lease) by the company
Only fixed cost that are directly linked to future cash flow can be capitalized.
Historical costs of the capitalized asset can be no greater than its related future cash flow.
This cash flow must be reliably measurable.

Allowance for doubtful account (disclosed in footnote)
Aging Analysis
Age of accounts

Current
1-60 days past due
61-90 days past due
Over 90 days past due

Total
Receivable
balance
$50,000
30,000
15,000
5,000

100,000
Estimated percent
uncollectible
2%
3
4
8

Estimated uncollectible account
$1,000
900
600
400

2,900
Reporting accounts receivable:
Accounts receivable, net of $2,900 in allowance..................... 97,100
Reconciliation of allowance for doubtful account
Beginning allowance for uncollectible accounts................. $ 2,200
Add: Provisions (Bad debts expense)..................................... 700
Less: Write - offs of account receivable................................. 0

Ending allowance for uncollectible accounts....................... 2,900
Inventory costing methods
Inventory on Jan 1, 2012
Inventory purchased in 2012

Total cost of goods available for sale in 2012
500 units
200

700
@ $ 100 per unit
150
$ 50,000
30,000

80,000
FIFO - First In First Out
450 units were sold in 2012 - calculate COGS and Ending inventory
COGS = 450 x 100 = 45,000
Ending inventory = 80,000 - 45,000 = 35,000
LIFO - Last In First Out
COGS = 200 x 150 + 250 x 100 = 55,000
Ending inventory = 80,000 - 55,000 = 25,000
Average cost
Average cost = Total cost of goods available for sale / total unit of goods available for sale
= 80,000 / 700 = 114
COGS = 450 x 114 = 51,300
Ending inventory = 80,000 - 51,300 = 28,700
LIFO method is used to save tax and increase cash flow
Depreciation methods
Useful life
: Period of time over which the asset is expected to generate benefits
Salvage value
: Expected disposal amount at the end of the asset's useful life
Depreciation rate
: An estimate of how the asset will be used up over its useful life
Depreciation expense = Depreciation base x depreciation rate
Straight-line method
Depreciation base = Useful life - Salvage value
Depreciation rate = 1 / Useful life
Double-declining-balance method
Depreciation base = Acquisition cost
Depreciation rate = 2 / Useful life
Depreciation expense is the same for every years throughout the asset's useful life
Depreciation expense is higher in the early years of the asset's useful life
Write - off of accounts receivable
Account

Accounts receivable
Less: Allowance for uncollectible accounts

Accounts receivable, net of allowance
Before write-off

$ 100,000
2,900

97,100
Effects of write-off

$ (500)
(500)
After write-off

$ 99,500
2,400

$ 97,100
Write-off of uncollectible accounts does not affect net amount of Accounts receivable reported on the balance sheet
Lower of cost or market
Companies must write down the carrying value of inventory if the reported cost exceeds market value (determined by current replacement cost)
Inventory write-down is reflected as an expense (part of COGS), reducing current period gross profit, net income, and equity
Asset impairments
Step 1: Compare book value to undiscounted expected future cash flow
Step 2: If book value is higher, measure impairment using discounted expected future cash flow
Asset sales
Gain or Loss on Asset Sales = Proceeds from Sales - Net book value of asset sold
If the gain or loss on asset sale is small, it is reported in Selling, general & administrative expenses (SG&A).
If the gain or loss is large, it is reported as a transitory operating income component.
Under
IFRS
, all receivable are treated as financial assets, i.e. future cash flows from accounts receivable must be discounted and reported at net present value
Under
IFRS
1. LIFO is not allowed
2. Inventory is carried at lower of cost or net realizable value instead of market value
3. Companies can reverse inventory write-down
Under
IFRS
1. PPE are disagregated into individual components which are depreciated separately.
2. Impairments are determined by discounted expected future cash flows instead of undiscounted ones.
3. Companies can reverse asset impairments


Accounts payable
Accounts payable are amounts that the company owed to others resulting from the purchase of goods and services on credit.
They are normally non - interest - bearing debts, thus, an inexpensive financing source.
Accrued liabilities
Accrued liabilities are expenses that have been incurred but not yet paid in cash (E.g: Electricity bills or wage expenses at the beginning of the month)
Contingent accrued liabilities
If the contingent liability is probable and estimable, it must be recorded on the balance sheet.
If the contingent liability is only reasonably possible and is not estimable, it is required to be disclosed in the footnote.
All other contingent liabilities which are less than reasonably possible are not disclosed.
Short-term interest-bearing debt
Include:
Short-term bank borrowings and notes expected to mature during the upcoming year.
Accrued interest payable on long-term debts.
Maturities of long-term debts
Include principal payments of long-term bank borrowings that are scheduled to mature in whole or in part during the upcoming year.
Long-term debts
Include
Long-term debts, bonds and notes expected to mature in whole or in part in more than one year
Warrant liabilities
Warranties are commitment of the company to the customers to repair or replace defective products within a specific period of time.
Thus, companies are required to record the expected cost of warranties as a liability, and the relevant warranties expense in the income statement in the same period that the sales revenue is reported
Contributed capital
Is the cumulative amount of cash inflows that the company has received from the issuance of various classes of stock, less all cash that it has paid to repurchase its stocks from the market.
Includes:
Preferred stock
Common stock
Additional paid-in capital
Earned capital
Is the cumulative amount of profits that the company has retained.
Includes:
Retained earning: Accumulated gains and losses of the company, less all dividends ever paid.
Accumulated other comprehensive income (AOCI): all changes in equity that have not affected net income yet, thus is not reflected in retained earning.
Unearned revenue
Unearned revenue is an accruals, represents an obligations to provide goods or services to customers, who have made deposits, subscriptions, or prepayments.
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