School of Business

Department of Accounting

Intermediate Financial Accounting I - BACC330

Chapter 5 |
Balance Sheet

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Objective 1: Elements of the Balance Sheet
Objective 2: Assets
• Section 2.1: Current Assets
• Section 2.2: Non-Current Assets / Long Term Investments
• Section 2.3: Non-Current Assets / Property, Plant and Equipment
• Section 2.3: Non-Current Assets / Intangible Assets
• Section 2.3: Non-Current Assets / Other Assets
Objective 3: Liabilities
• Section 3.1: Current Liabilities
• Section 3.2: Long Term Liabilities

Objective 4: Owners’ Equity

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Objective 1: Elements of the Balance Sheet

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 Assets Liabilities Equity

Probable future economic Probable future sacrifices of Residual interest in the assets of
benefits obtained or controlled by economic benefits arising from an entity that remains after
a particular entity as a result of present obligations of a particular deducting its liabilities. In a
past transactions or events entity to transfer assets or provide business enterprise, the equity is
services to other entities in the the ownership interest.6
future as a result of past
transactions or events.

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 Contra Assets Contra Liabilities Contra Equity

They are reported in the They are reported in the They are reported in the
ASSET category BUT their Liabilities category BUT Equity category BUT their
sign is MINUS their sign is MINUS sign is MINUS
Contra Asset Asset
AFDA They decrease
Receivables
Contra liability liability Contra Equity Equity
Accumulated They decrease PPE
Discount on Bonds They decrease Treasury Stock (TS) They decrease
Depreciation except land
Payable Bonds Payable equity
Accumulated They decrease Natural
Depletion Resources
Accumulated They decrease
Amortization Intangible assets

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 Assets

A- Current Assets (less than one year) B- Long Term Assets

By Order of Liquidity
-1- Long Term Investments
-2- PPE
-3- Intangible Assets
-4- Other Assets

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 Liabilities

A- Current Liabilities: less than 1 year B- Long Term Liabilities: more than 1 year

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 Shareholders’
equity

A- Paid In Capital (PIC) B- Retained Earnings (RE) C- D- Treasury Stock E- Non

Accumulated Controlling
Other (TS) Interest NCI
-1- Capital Stock Comprehensiv Contra Equity
(Legal as per par e Income
value or stated value) (Unrealized
holding gain or
-2- Additional PIC loss)
(APIC) or Premium

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 Name of the Company

Balance Sheet

Date

Assets

Total Assets TA

Liabilities & shareholders’ Equity

Total Liabilities TL

Total Shareholders’ Equity TO

Total Liabilities & shareholders’ Equity TL+TO

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Objective 2: Assets

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 Contra Assets

They are reported in the

ASSET category BUT their
sign is MINUS

AFDA They decrease Receivables

Accumulated Depreciation They decrease PPE
Accumulated Depletion They decrease Natural Resources
Accumulated Amortization They decrease Intangible assets

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 Section 2.1: Current Assets
Current assets are cash and other assets a company expects to convert into cash, sell, or consume either in one year or in the
operating cycle, whichever is longer

Current assets are presented in the balance sheet in order of liquidity

The five major items found in the current assets section, and their bases of valuation

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Short Term Investments • Held-to-maturity: Debt securities that a company has
the positive intent and ability to hold to maturity
• Trading: Debt securities bought and held primarily for
sale in the near term to generate income on short-term
price differences
• Available-for-sale: Debt securities not classified as
held-to-maturity or trading securities

Receivables

Inventories

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Current Assets (by order of liquidity)
Cash (includes Petty Cash Fund PCF) & Cash equivalents
Short term investments = Marketable securities (At FAIR VALUE NOT at cost)
Available for Trade securities
Held - to – Maturity securities
Ready for Sale securities
AR
- AFDA (contra Asset)
NR
- AFDA (contra Asset)
Other receivables = non trade receivables (less than 1 year)
Dividends Receivable
Rent Receivable
Interest receivable
Receivables From Employees
Inventory (at Lower of Cost or Market value LCM)
Finished Goods
WIP
Raw Material
Supplies
Prepaid = "advances to"
Prepaid rent
Prepaid advertising
Prepaid insurance
Total Current Assets
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 Section 2.2: Non Current Assets / Long Term Investments

Long term Investments

Investment in Stocks
Investment in Bonds
Investment in Real Estate (land held for speculation)
Pension fund
Bond Sinking fund
Cash surrender value of life insurance
Cash Restricted for future expansion
Total Investments

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 Section 2.3: Non Current Assets / Property, Plant and Equipment (PPE)

PPE (by order)

Land (unlimited life)

Land Improvements (fences, Parking lots, Sidewalks, sprinkler systems,

landscaping, driveways)
- Accumulated depreciation: Land Improvements

Buildings
- Accumulated depreciation: Buildings

Equipment & Furniture

- Accumulated depreciation: Equipment & Furniture

Vehicles
- Accumulated depreciation: Vehicles

Natural Resources
- Accumulated Depletion
Total PPE 16
 Section 2.4: Non Current Assets / Intangible Assets
Intangible assets lack physical substance

They include goodwill, trademarks, trade names, patents, copyrights, franchises

A company:
• periodically assesses indefinite-life intangibles (such as goodwill) for impairment
• writes off (amortizes) limited-life intangible assets over their useful lives
Intangible Assets
Goodwill (we do not amortize GW, we impair it)
Tradename (we do not amortize it, unlimited life)
Trademark = logo (we do not amortize it, unlimited life)

Copyrights
- Accumulated Amortization: Copyrights

Patent
- Accumulated Amortization: Patents

Franchise
- Accumulated Amortization: Franchise

License
- Accumulated Amortization: License
Total Intangible Assets 17
 Section 2.5: Non Current Assets / Other Assets

Other Assets
Long term prepaid expenses
Long term prepaid pension costs
Non current receivables
Property held for sale
Total Other Assets

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Objective 3: Liabilities

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 Section 3.1: Current Liabilities

Current Liabilities
Notes Payable (less than 1 year)
Accounts Payable
Accrued Liabilities (Salaries & Wages Payable, Interest Payable, Tax Payable,
Dividends Payable…)
Unearned Revenues
Income Tax Payable
Current Portion of a Long Term Debt
Total Current Liabilities

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 Section 3.2: Long Term Liabilities

Long Term Liabilities

Long term Notes Payable
Long term lease obligations
Pension Obligation
Bonds Payable
+ Premium on Bonds Payable

Bonds Payable
- Discount on Bonds Payable
Total Long Term Liabilities

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Objective 4: Owners’ Equity

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Non-owner changes in
equity that bypass the
income statement are
referred to as other
comprehensive income,
such as : Unrealized
holding gain or loss

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Stockholders’ Equity
1- Paid In Capital (PIC)
A- Capital Stock (legal capital)
PS
CS
CS dividends Distributable
Total Capital Stock (legal)

B- Additional Paid in Capital (APIC)

in excess of par: PS = premium
in excess of par: CS = premium
from Treasury Stock
Total APIC
Total Paid In Capital
2- Retained Earnings (RE)
Total Paid-in capital and Retained earnings
3- Accumulated Other Comprehensive Income
4- Less: Treasury Stock (TS)
Equity Attributable to our company
5- Equity Attributable to Non-Controlling Interest NCI
Total Stockholders’ equity

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Demonstration Problem
#1

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Demonstration Problem
#2

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Sanchez Company

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To solve in the Book

BE 5-2, 5-3, 5-4, 5-5, 5-7, 5-8, 5-9

E 5-5, 5-12

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