Balance Sheet Terminologies

ASSETS

Current assets constitute assets owned by the company that can be converted into cash within a year. Current assets are listed in the order of liquidity or ease of convertibility to cash. Since “cash and cash equivalents” are already cash, it ranks first.

Accounts receivable represents goods sold to customers but not yet paid. On occasion, the company encounters slow payers or prove to be uncollectible. For this reason, companies establish a reserve for bad debts.

Inventories are balances of materials at various stage of manufacture: raw materials, work in process, and finished goods. A good example would be the manufacturing process of JFC, their raw materials is meat, work in process is ground pork, and finished goods are the frozen patty.

Noncurrent assets are assets which are not expected to be converted into cash for more than one year. Included in the noncurrent assets is property plant and equipment (PPE). PPE are assets owned and expected to be employed by the company on a continuing basis. To recognize the wear and tear in using an asset, all assets in the PPE are depreciated over its useful life except for land.

LIABILITIES

Current liabilities are debts that come due within one year. Included in the current liabilities is trade and accounts payable which are accounts owned by the company to its suppliers.

Noncurrent liabilities are debts that come due for more than one year.

EQUITY

Par value is the value that was originally assigned to each common stock shares when the company was originally organized. It is also the least amount the shares of stock can be sold for. Par value has no or little relationship with a stocks share value.

Common stock is the value of total outstanding shares multiplied by its par value. Additional paid-in capital (APIC) is the excess amount paid by a stockholder over the stated par value.  Example, shareholder A pays P5 for 1 a share of Pancake House (PCKH) which has a par value of P1, PCKH shall recognize P1 for the Common stock account and P4 for the APIC account.

Retained earnings is the sum total of each year’s net income. Retained earnings may be distributed as dividends. Other companies prefer not to declare dividends and use the cash saved for expanding the company operations.

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One thought on “Balance Sheet Terminologies

  1. Pingback: Statement of Cash Flows Terminologies | Fundamental Enthusiast

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