Republic of the Philippines

RAMON MAGSAYSAY TECHNOLOGICAL UNIVERSITY

Iba, Zambales

GRADUATE SCHOOL

Subject: School and Business Finance

Reporter: Hilda H. Javillonar
Professor: Dr. Esmen Cabal

Balance Sheet

- Summarizes the financial condition of the business at a point in time.

- Estimates net worth or owner equity
- Most transaction affect the balance sheet, so it may change daily.

Purpose of a Balance Sheet

- Everything “owned” and “owed” by a business or individual at a given point in time.

- Asset- anything of value owned
- Liability- any debt or other financial obligation owed to someone else.
- Owner Equity/Net worth- the amount the owner has invested in the business.
- “Balance” idea:
Owner Equity= Assets-Liabilities

General Format of a Balance Sheet

Assets Liabilities

Current assets xxx Current liabilities xxx

Noncurrent assets xxx Noncurrent liabilities xxx
Total assets xxx Total liabilities xxx

Owner’s equity xxx

Total liabilities and
owner’s equity xxx
Assets

- An asset can be sold to generate additional cash.

- Used to produce other goods.

Current Assets

- Goods that have already been produced and can be sold quickly without disrupting future
production activities:
 Grain
 Feeder livestock
 Other inventories

- Goods that will ordinarily be used up or sold within the next year:
 Cash
 Checking and savings account balances
 Marketable investments
 Accounts and notes receivable
 Inventories of feed, farm supplies, etc.

Noncurrent Assets

- Any asset that is not a current asset.

- Assets that will be sold to produce the output that will be sold to produce revenue.
- More difficult to sell quickly and easily at their full market value:
 Machinery and equipment
 Breeding livestock
 Buildings
 Land

Liabilities

- An obligation or debt owed to someone else.

- An outsider’s claim against one or more assets of the business.
Current liabilities

- Financial obligation that will become due and payable within 1 year
 Accounts payable
 Principal and accumulated interest on short term loans or notes payable (operating
loan)
 Principal payments on long-term loans due within the next year:
-machinery, land
 Accrued expenses:
- Accumulated interest, accrued property taxes, etc.

Noncurrent liabilities

- All obligations that don’t have to be paid in full within the next year.
-The remaining balance on long-term debt.

Owner Equity

- The amount of money left for the owner if the assets were sold and all liabilities paid.
- Also called Net Worth.
- The owner’s current investment in the business

Equity = Total Assets-Total liabilities

Cash Flow Statement

 Shows where cash came from and how it was spent
 Reports why cash increased or decreased during the period
 Communicating link between the Income Statement and cash reported on the Balance
Sheet
Use of Cash-Flow Information

Cash Equivalents

 Highly liquid investments

 Can convert into cash quickly

Basic Cash Flow Activities

Operating Activities

 Most important category

 Create revenues, expenses, gains and losses
 Transactions that make up net income
 Also affect current assets and current liabilities on the Balance Sheet

Investing Activities

 Transactions that increase and decrease long-term assets

 Includes loans receivable

Financing Activities

 Increases and decreases in long-term liabilities and owner’s equity

Operating, Investing & Financing Activities and the Balance Sheet
 Cash Flows from Investing Activities

 Sales and acquisitions of long-term assets

 Analyze accounts to determine activity
 If gain or loss appears on the Income Statement, a long-term asset has been sold

Cash Flows from Financing Activities

 Issuance of and payments on long-term notes payable

 Issuances of stock and purchases of treasury stock
 Analyze accounts to determine activity