Balance Sheet

Within the chart of accounts the balance sheet accounts are listed first, followed by the income statement accounts. In other words, the accounts are organized in the chart of accounts as follows: Assets Liabilities Owner's (Stockholders') Equity Revenues or Income Expenses Gains Losses

Examples of asset accounts* that are reported on a company's balance sheet include: Cash Petty Cash Temporary Investments Accounts Receivable Inventory Supplies Prepaid Insurance Land Land Improvements Buildings Equipment Goodwill Bond Issue Costs Etc.

Usually these asset accounts will have debit balances. Contra assets are asset accounts with credit balances. (A credit balance in an asset account is contraryor contrato an asset account's usual debit balance.) Examples of contra asset accounts include: Allowance for Doubtful Accounts Accumulated Depreciation-Land Improvements Accumulated Depreciation-Buildings Accumulated Depreciation-Equipment Accumulated Depletion Etc.

Classifications Of Assets On The Balance Sheet

Accountants usually prepare classified balance sheets. "Classified" means that the balance sheet accounts are presented in distinct groupings, categories, or classifications. The asset classifications and their order of appearance on the balance sheet are: Current Assets

Investments Property, Plant, and Equipment Intangible Assets Other Assets

An outline of a balance sheet using the balance sheet classifications is shown here: Example Company Balance Sheet May 31, 2007 ASSETS Current Assets Investments Property, Plant, and Equipment Intangible Assets Other Assets Total Assets Owner's Equity Total Liabilities & Owner's Equity LIABILITIES & OWNER'S EQUITY Current Liabilities Long-term liabilities Total Liabilities

Asset Accounts
No. Account Title To Increase Debit Debit Debit Debit Debit Debit Debit Credit Debit Credit Description/Explanation of Account Checking account balance (as shown in company records), currency, coins, checks received from customers but not yet deposited. Amounts owed to the company for services performed or products sold but not yet paid for. Cost of merchandise purchased but has not yet been sold. Cost of supplies that have not yet been used. Supplies that have been used are recorded in Supplies Expense. Cost of insurance that is paid in advance and includes a future accounting period. Cost to acquire and prepare land for use by the company. Cost to purchase or construct buildings for use by the company. Amount of the buildings' cost that has been allocated to Depreciation Expense since the time the building was acquired. Cost to acquire and prepare equipment for use by the company. Amount of equipment's cost that has been allocated to Depreciation Expense since the time the equipment was acquired.

101 Cash 120 140 Accounts Receivable Merchandise Inventory

150 Supplies 160 Prepaid Insurance 170 Land 175 Buildings Accumulated 178 Depreciation Buildings 180 Equipment 188 Accumulated Depreciation -

Equipment

Examples of liability accounts reported on a company's balance sheet include: Notes Payable Accounts Payable Salaries Payable Wages Payable Interest Payable Other Accrued Expenses Payable Income Taxes Payable Customer Deposits Warranty Liability Lawsuits Payable Unearned Revenues Bonds Payable Etc.

These liability accounts will normally have credit balances. Contra liabilities are liability accounts with debit balances. (A debit balance in a liability account is contraryor contrato a liability account's usual credit balance.) Examples of contra liability accounts include: Discount on Notes Payable Discount on Bonds Payable Etc.

Classifications Of Liabilities On The Balance Sheet

Liability and contra liability accounts are usually classified (put into distinct groupings, categories, or classifications) on the balance sheet. The liability classifications and their order of appearance on the balance sheet are: Current Liabilities Long Term Liabilities Etc.

Liability Accounts
No. Account Title To Increase Credit Credit Description/Explanation of Account The amount of principal due on a formal written promise to pay. Loans from banks are included in this account. Amount owed to suppliers who provided goods and services to the company but did not require immediate payment in cash.

210 Notes Payable 215 Accounts Payable

220 Wages Payable 230 Interest Payable 240 250 Unearned Revenues Mortgage Loan Payable

Credit Credit Credit Credit

Amount owed to employees for hours worked but not yet paid. Amount owed for interest on Notes Payable up until the date of the balance sheet. This is computed by multiplying the amount of the note times the effective interest rate times the time period. Amounts received in advance of delivering goods or providing services. When the goods are delivered or services are provided, this liability amount decreases. A formal loan that involves a lien on real estate until the loan is repaid.

Owner's Equityalong with liabilitiescan be thought of as a source of the company's assets. Owner's equity is sometimes referred to as the book value of the company, because owner's equity is equal to the reported asset amounts minus the reported liability amounts. Owner's equity may also be referred to as the residual of assets minus liabilities. These references make sense if you think of the basic accounting equation: Assets = Liabilities + Owner's Equity and just rearrange the terms: Owner's Equity = Assets - Liabilities

"Owner's Equity" are the words used on the balance sheet when the company is a sole proprietorship. If the company is a corporation, the words Stockholders' Equity are used instead of Owner's Equity. An example of an owner's equity account is Mary Smith, Capital (where Mary Smith is the owner of the sole proprietorship). Examples of stockholders' equity accounts include: Common Stock Preferred Stock Paid-in Capital in Excess of Par Value Paid-in Capital from Treasury Stock Retained Earnings Etc.

Both owner's equity and stockholders' equity accounts will normally have credit balances. Contra owner's equity accounts are a category of owner equity accounts with debit balances. (A debit balance in an owner's equity account is contraryor contrato an owner's equity account's usual credit balance.) An example of a contra owner's equity account is Mary Smith, Drawing (where Mary Smith is the owner of the sole proprietorship). An example of a contra stockholders' equity account is Treasury Stock.

Classifications of Owner's Equity On The Balance Sheet

Owner's equity is generally represented on the balance sheet with two or three accounts (e.g., Mary Smith, Capital; Mary Smith, Drawing; and perhaps Current Year's Net Income). Click

here to see these accounts in the sample balance sheet in Part 3. The stockholders' equity section of a corporation's balance sheet is: Paid-in Capital Retained Earnings Treasury Stock

The stockholders' equity section of a corporation's balance sheet is:

STOCKHOLDERS' EQUITY Paid-in Capital Preferred Stock Common Stock Paid-in Capital in Excess of Par Value - Preferred Stock Paid-in Capital in Excess of Par Value - Common Stock Paid-in Capital from Treasury Stock Retained Earnings Less: Treasury Stock TOTAL STOCKHOLDERS' EQUITY

Owner's Equity Accounts

No. 290 295 Account Title Mary Smith, Capital Mary Smith, Drawing To Increase Credit Debit Description/Explanation of Account Amount the owner invested in the company (through cash or other assets) plus earnings of the company not withdrawn by the owner. Amount that the owner of the sole proprietorship has withdrawn for personal use during the current accounting year. At the end of the year, the amount in this account will be transferred into Mary Smith, Capital (account 290).

A Sample Balance Sheet

Most accounting balance sheets classify a company's assets and liabilities into distinctive groupings such as Current A Property, Plant, and Equipment; Current Liabilities; etc. These classifications make the balance sheet more useful. following sample balance sheet is a classified balance sheet. Sample Balance Sheet:

Example Company Balance Sheet December 31, 2006

ASSETS Current Assets Cash Petty Cash Temporary Investments Accounts Receivable - net Inventory Supplies Prepaid Insurance Total Current Assets Investments Property, Plant & Equipment Land Land Improvements Buildings Equipment Less: Accum Depreciation Prop, Plant & Equip - net Intangible Assets Goodwill Trade Names Total Intangible Assets Other Assets Total Assets

$ 2,100 100 10,000 40,500 31,000 3,800 1,500 89,000 36,000

LIABILITIES Current Liabilities Notes Payable Accounts Payable Wages Payable Interest Payable Taxes Payable Warranty Liability Unearned Revenues Total Current Liabilities Long-term Liabilities Notes Payable Bonds Payable Total Long-term Liabilities

$ 5,000 35,900 8,500 2,900 6,100 1,100 1,500 61,000

5,500 6,500 180,000 201,000 Total Liabilities (56,000) 337,000

20,000 400,000 420,000

481,000

105,000 200,000 305,000 3,000 $770,000 Total Liabilities & Stockholders' Equity $770,000 STOCKHOLDERS' EQUITY Common Stock Retained Earnings Less: Treasury Stock Total Stockholders' Equity 110,000 229,000 (50,000) 289,000

The notes to the sample balance sheet have been omitted.