Level 1 - Balance sheet and its components

Question 1

what is a balance sheet?

Answer 1

A balance sheet is a financial statement of everything a company owns (assets) and owes (liabilities) at a given point in time.

** Assets = Liabilities + Shareholders Equity**

*( Shareholders equity represents the owners residual interest in the company after liabilities have been deducted.)

Question 2

Define Assets and type of assets included on the balance sheet?

Answer 2

Assets are resources owned by the company with economic value and are expected to provide future benefits. They are typically classified into current assets and non-current (fixed assets).

**A. Current Assets: They are expected to be converted to cash or used up within one year.

1. Cash & cash equivalents: cash on-hand, bank balances, or short term investments.
2. Accounts Receivable : Money owed to the company by consumers for sales made on credit.
3. Inventory: Goods available for sale
4. Prepaid Expenses: Payments made in advance for goods & services to be used in the future
5. Marketable Securities: Short-term investments that can be easily sold or converted to cash

B. Non-current assets (fixed-assets): These are long-term assets that are not expected to turn into cash within a year.

1. Property, Plant, and eavipment (PP&E): Land, buildings, machinery, and equipments.
2. Intangible assets: Non-physical assets like trademarks, patents, goodwill and intellectual property.
3. Long-term investments: investments in other companies or financial instruments that are to be held for more than a year.
4. Deferred Tax Assets: Taxes thathave been paid but not yet recognized in the income statement.**

Question 3

Apart from assets, what are liabilities and what are the different types ?

Answer 3

** Liabilities: represent obligations or debts that the company owes to other parties. They are also divided into two main categories: current liabilities and non-current liabilities.

A. Current Liabilities: These are obligations that the company is expected to settle within a year.

1. Accounts Payable: Money owed to suppliess or vendors for goods/services received.
2. Short-term debt.: Loans & other borrowings due within one year.
3. Accrued Expenses: Expenses that have been incurred but not yet paid (for e.g. salaries, interest)
4. Unearned Revenue: Payments received in advance for goods & services yet to be delivered.
5. current portion of long-term debt: that is due within same year.

B. Non-Current liabilities: These are longterm obligations that are not due within one year.

1. Long-term debt:- that is due after one year.
2. Deferred Tax Liabilities: taxes that are owed but not yet payable.
3. Pension liabilities: obligation to pay employee pension benefits.
4. Other long-term liabilities: Lease obligations, deferred revenue beyond one year etc.

Question 4

Define Shareholders equity & its types?

Answer 4

**Shareholders equity represents the owners residual interest in the company after liabilities have been deducted from assets. It includes:

1. common stock: The par value of issued shares.
2. Additional Paid-in Capital:- The amount received from shareholders above par value of shares.
3. Retained Earnings: . The cumulative amount of net income that has been retained rather than distributed to shareholders as dividents.
4. Treasury Stock: The value of stock that the company has repurchased from shareholders.
5. Other comprehensive Income: Unrealised gains or losses that are not included in net income but are recorded in equity. ( for eg. foreign currency translations adjustments, unrealized gains/losses on investments.)