Principle of Accounting
Chapter 5: Foundations of Financial
Reporting and The Classified Balance Sheet
MSC. NGUYEN BAO QUAN
EMAIL:
[email protected] Standard Balance Sheet Classifications
• The balance sheets presented thus far categorize accounts as assets,
liabilities, and owner’s equity
• A classified balance sheet generally has the following standard
classifications:
ASSETS
• Current assets include cash and other assets that a company can
reasonably expect to convert to cash, sell, or consume within one
year or its normal operating cycle.
• Current Assets includes Cash; Short-term investments; Note &
Account Receivable; Inventory; Prepaids.
ASSETS
• Investments include assets, usually long-term, that are not used in
normal business operations and that management does not plan to
convert to cash within one year.
• Examples of investment items:
➢Securities held for long-term investment
➢Long-term notes receivable
➢Land held for future use
➢Plant or equipment not used in the business
➢Special funds established to pay off a debt or buy a building
ASSETS
• Tangible assets of a relatively permanent nature that are used in the
business and not intended for sale.
• Tangible assets include property, plant, and equipment
• Intangible assets are long-term assets that do not have physical
substance.
• Intangible assets include patents, copyrights, trademarks, or trade
names that give the holder exclusive right of use for a specified period
of time
LIABILITES
• Current liabilities are obligations that are reasonably expected to be
paid from existing current assets or through the creation of other
current liabilities within one year or the operating cycle, whichever is
longer.
• Current liabilities include Note & Accounts payable; Unearned
revenue; Interest payable; S&W payable; and current portions of
long-term debt
LIABILITES
• Long-term liabilities are obligations expected to be paid after one
year.
• Long-term liabilities include:
➢ Long-term notes payable,
➢ Bonds payable,
➢ Mortgages payable,
➢ Long-term lease liabilities.
OWNER’S EQUITY
• The content of the equity section varies with the form of business
organization.
• Although the form of business organization does not usually affect
the accounting treatment of assets and liabilities, the equity section
of the balance sheet differs depending on whether the business is a
sole proprietorship, a partnership, or a corporation
• In a proprietorship, there is a single owner’s equity account called
(Owner’s Name), Capital.
• In a partnership, there are separate capital accounts for each partner.
• In a corporation, owners’ equity is called shareholders’ equity, and it
consists of two accounts: Share Capital and Retained Earnings.
Quick check !!
EXERCISE !!
• Prepare the classified balance sheet
