Lecture Notes: Preparing a Balance Sheet

Overview

• Current Focus: Problem 13A
  • Outcome: Company made a profit of $20,700
  • Prepared:
    • Income Statement
    • Statement of Changes in Equity
  • Next Step: Prepare the Balance Sheet

Balance Sheet Preparation

Preliminary Steps

• Title Setup:
  • Suggested Paper Orientation: Landscape (for wide statements)
  • Three-line Title:
    • Company Name: Sherry’s Shuttles
    • Statement Name: Balance Sheet (or Statement of Financial Position)
    • Date: December 31, 2024

Key Concepts

• Date Format: Balance sheet is dated only (e.g., December 31, 2024), not 'for the year ended'.
  • Purpose: Shows position at a specific point in time (e.g., cash balance, equipment, debts).
• Equation: Assets = Liabilities + Shareholders’ Equity

Assets

• Listing Assets:
  • Use capital letters for headings
  • Two Categories: Current Assets and Long-term Assets
  • Order of Liquidity: From most liquid to least liquid

Current Assets

• Items:
  • Cash: $5,000
  • Accounts Receivable (AR): $1,000
  • Office Supplies: $500
• Total Current Assets: $6,500

Long-term Assets (PP&E)

• Items:
  • Equipment: $30,000
  • Building: $100,000
• Total Long-term Assets: $130,000

Total Assets

• Total: $136,500

Liabilities

• Categories: Current Liabilities and Long-term Liabilities

Current Liabilities

• Items:
  • Accounts Payable: $2,200
  • Wages Payable: $1,600
• Total Current Liabilities: $3,800

Long-term Liabilities

• Item:
  • Bank Loan: $45,000
• Total Liabilities: $48,800

Shareholders' Equity

• Accounts:
  • Common Shares: $60,000
  • Retained Earnings: $27,700
• Total Shareholders' Equity: $87,700

Balance Sheet Finalization

• Grand Total: Total Liabilities + Shareholders' Equity = $136,500
• Balance Check: Assets = Liabilities + Shareholders’ Equity
  • Confirmed that Balance Sheet balances.

Additional Notes

• Formatting: Dollar signs at the top of each column and beside double underlined totals.
• Next Steps: Basic ratios and personal anecdote in next session.

End of the Lecture

• Balance sheet is complete. Ready to proceed to ratios and further discussions.