Question

1. Daymar Café had the following assets: Machinery, $7,450; Cash, $1,300; Land, $11,500; Prepaid Expenses, $3,150; Accounts Receivable, $2,750; Inventory, $5,500; and a building, $13,000. At year-end, on June 30, 2019, Lara Middleton's capital account had a balance of $8,750. The company's only liabilities are: Long-Term Debt, $22,500; Accounts Payable, $5,950; and Accrued Expenses, $7,450. Prepare the company's balance sheet, distinguishing between current and long-term assets and liabilities. Red Boat Co. Balance Sheet June 30, 2015 Assets Current assets: Cash Accounts receivable $ 1,300 2,750

Answer 1

Balance sheet (also known as the statement of financial position) is a financial statement that shows the assets, liabilities and owner’s equity of a business at a particular date. The main purpose of preparing a balance sheet is to disclose the financial position of a business enterprise at a given date. While the balance sheet can be prepared at any time, it is mostly prepared at the end of the accounting period.

We can broadly divide balance sheet into assets section and labilities section.

Asset Section:

The mostly adopted approach is to divide assets into current assets and non-current assets.

Current assets are all assets of a company that are expected to be sold or used as a result of standard business operations over the next year and further lead to the conversion of liquid cash.Examples of current assets include cash, cash equivalents, accounts receivables, prepaid expenses or advance payments, short-term investments and inventories

Long term assets or Non current asets are those a business expect to use replace and or convert to cash beyond the normal operating cycle of at least 12 months.Examples of such assets include long-term investments, equipment, plant and machinery, land and buildings, and intangible assets.

Liabilities section:

They are grouped as current liabilities and long-term liabilities in the balance sheet

Current liabilities are a company's short term financial obligations that are due within one year or within a normal operating cycle.

Long tem liabilities or non current liabilities are financial obligations of a company that are due more than one year in the future.

Owner’s equity section

Owner’s equity is the obligation of the business to its owners. The term owners’ equity is mostly used in the balance sheet of sole proprietorship and partnership form of business. In a company’s balance sheet the term “owner’s equity” is often replaced by the term “stockholders equity”.

Format of the balance sheet

There are two formats of presenting assets, liabilities and owners’ equity in the balance sheet – account format and report format. In account format, the balance sheet is divided into left and right sides like a T account. The assets are listed on the left hand side whereas both liabilities and owners’ equity are listed on the right hand side of the balance sheet. If all the elements of the balance sheet are correctly listed, the total of asset side (i.e., left side) must be equal to the total of liabilities and owners’ equity side (i.e., right side).

In report format, the balance sheet elements are presented vertically i.e., assets section is presented at the top and liabilities and owners equity sections are presented below the assets section.

The balance sheet given in below formats

Account format

5,950 7,450 13,400 Balance sheet of Red Boat co. as on June 30, 20Y5. Assets Liabilities Current assets Current liabilities Cash 1,300 Account payable Accounts Receivable 2,750 Accrued expenses Prepaid expenses 3,150 Total Current liabilities Inventory 5,500 Total Current assets 12,700 Non current or Long term Liabilities Total liabilities Non current assets or long term assets Propert, Plant & Equipment Owners Equity Land 11,500 Capital Building 13,000 Machinery 7,450 31,950 22,500 35,900 35,900 8,750 Total Assets 44,650 Total Laibilities & Equity 44,650

Report format

Balance sheet of Red Boat co. as on June 30, 20Y5. Assets Current assets Cash 1,300 Accounts Receivable 2,750 Prepaid expenses 3,150 Inventory 5,500 Total Current assets 12,700 Non current assets or long term assets Propert, Plant & Equipment Land 11,500 Building 13,000 Machinery 7,450 31,950 Total Assets 44,650

5,950 7,450 Liabilities Current liabilities Account payable Accrued expenses Total Current liabilities Non current or Long term Liabilities Total liabilities Owners Equity Capital Total Laibilities & Equity 13,400 22,500 35,900 8,750 44,650