MBA Financial

Management
Understanding Financial
Information
Balance Sheets
1

Jill TYNAN
LEARNING OBJECTIVES

LO 1 : Produce and analyse Financial Statements

LO 2 : Manage a budget

LO 3 : Elaborate, implement and follow-up strategic decisions

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MODULE CONTENTS

A4 APM Management Accounting - J

TYNAN
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Understanding
Financial
Information
Financial Statements
1. Balance Sheet
2. Income Statement
3. Cashflow statement

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What are Financial Statements?

Financial statements are written records that convey the business activities
and the financial performance of a company.
Financial statements are often audited by government agencies,
accountants, firms, etc. to ensure accuracy and for tax, financing, or
investing purposes.
For-profit primary financial statements include the balance sheet, income
statement, statement of cash flow, and statement of changes in equity.
Nonprofit entities use a similar but different set of financial statements.

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Balance Sheet?
The balance sheet provides an overview of assets, liabilities, and
shareholders' equity as a snapshot in time.
Financial Position

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Income
statement?
The income statement
primarily focuses on a
company’s revenues and
expenses during a
particular period.
Once expenses are
subtracted from revenues,
the statement produces a
company's profit figure
called net income.

Financial Performance

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The cash flow
statement?
The cash flow statement
(CFS) shows the inflows
and outflows of CASH
during the year.
It measures how well a
company generates cash
to pay its debt
obligations, fund
its operating expenses,
and fund investments.

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The Balance Sheet

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The Balance Sheet The BS is a Photo of the financial situation
at year end

What the company owns or uses to do business

Assets Long-term assets (machines) + 1 year
Short-term assets turned into cash within the year
Cash in the bank
Inventory (merchandise, Raw material)
Ect.

Liabilities What the company owes to others

Long-term debts (Bank loan..)
Short-term debts (payables, suppliers, …)

Capital or Where the money came from

Shareholder’s equity Associates, shareholders, owner
Accumulated profits
Reserves

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The Balance Sheet

I Current assets I Current liabilities Assets

Liabilities & Eequity

I I Non current assets I I Non current liabilities

or Long-term debts
or Fixed assets

I I I Shareholder’s equity

The accounting equation :

Assets = Liabilities + Stockholder's Equity 11
The Balance Sheet

The balance sheet is a summary of the assets, liabilities, and equity of a

business at a particular point in time—usually the end of the
firm's fiscal year.

Assets are the resources of the business enterprise. They are used to
generate future benefits.
Fixed assets: Plants, equipment, securities, financial instruments
that will generate cash inflows in the future.
Current assets: cash, investments, accounts receivable, inventory

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The Balance sheet : ASSETS

I - CURRENT ASSETS N N-1

Cash 164,100 128,000
Short term investments 200,000 180,000
Insurance claim receivable 250,000 210,000
Accounts receivable less : allowances for doubtful 1.010.000 875,000
accounts (1,016,000-6,000)
Inventories 1,146,000 1,015,000
TOTAL I 2,740,100 2,408,000
Il - FIXED ASSETS
INVESTMENTS
Investments in company H&M (shares) 115,000 103,000
TANGIBLE ASSETS
Land 800,000 800,000
Buildings Less : accumulated depreciation of building 2,847,800 2,549,100
(3,951,800-1,104,000)
Leased equipment Less :accumulated depreciation 1,180,000 1,007,000
(1,400,000-220,000)
INTANGIBLE ASSETS
Goodwill 62,400 62,400
Patents 68,500 68,500
Other non current assets 100,000 86,000
TOTAL II 5,173,700 4,573,000
TOTAL 7,913,800 7,084,000

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 THE BALANCE SHEET : LIABILITIES
Balance Sheet

Liabilities are obligations of the business (debts). They represent

commitments to creditors in the form of cash outflows.

Ex:
• When a firm borrows money from the bank, it becomes obliged to pay
interest and principal on this loan as promised.
• The company buys raw materials but pays later : a debt towards the
supplier

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THE BALANCE SHEET : LIABILITIES & EQUITY

I Current liabilities
Paid in less than a year
Accounts payable (suppliers)
< 1year
Tax payable

Paid in over a year I I Non current liabilities

> 1year Loan from bank
Bonds

I I I Shareholder’s equity (Capital)

Preferred stock (12.5%; $100 par value)
Common stock ($1 par value)
Additional paid-in capital
Retained earnings

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 THE BALANCE SHEET : LIABILITIES & EQUITY
LIABILITIES
N N-1
1- CURRENT LIABILITIES
Accounts payable 743,400 800,000
Notes payable
Make sure you 1,030,000 728,000
Income taxes payable 92,600 75,000
understand every Dividends payable
170,500 150,000
thing on the Liability under capital lease 120,000 142,000
2,156,500 1,895,300
TOTAL I
document.
II - LONG TERM DEBTS
Liability under capital lease 930,000 1,072,000
TOTAL II 930,000 1,072,000
Does it make sense?
III - STOCKHOLDERS' EQUITY

Preferred stock 7 % $ 100 per 650,000 650,000

authorized 10,000 shares

Common stock $ 50 per authorized 2,500,000 2,500,000

50,000 shares
295,000 295,000
Additional paid-in-capital
Retained earnings 1,382,300 671,700
TOTAL III 4,827,300 4,116,700

TOTAL 7,913,800 7,084,000

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 THE BALANCE SHEET : • Notes Payable
LIABILITIES
• Accounts Payable
• Salaries Payable
Current Liabilities • Wages Payable
Examples • Interest Payable
• Other Accrued
Expenses Payable
• Income Taxes Payable
• Customer Deposits
• Warranty Liability
• Lawsuits Payable
• Unearned Revenues
• Bonds Payable
Accounting
Coach

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 THE BALANCE SHEET : EQUITY

Equity, reflects ownership.

Also called shareholders' equity (or stockholders' equity)
Also known as CAPITAL

The equity of a firm represents the part of its value that is not owed to creditors
and therefore is left over for the owners.

Equity = Assets – Liabilities

www.accountingcoach.com

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Balance Sheet
T H E :BEquity
A L A N C accounts
E S H E E T include:
: EQUITY

Common Stock Holders of common stock elect the corporation's directors and share
in the distribution of profits of the company via dividends
Preferred Stock Preferential treatment of dividends: preferred stockholders will be
paid dividends before the common stockholders. They do not vote.
Paid-in Capital The amount paid to a corporation for its common stock that was in
excess of the common stock's par value. The par value of common stock is recorded in
a separate stockholder's equity account.)
Minority Interest (arises when a company has subsidiaries that partly belong to
others)
Treasury Stock A corporation's own stock that has been repurchased from
stockholders.
Retained Earnings The accumulation of net income (and net loss) since the creation of
the company, less the dividends declared 19
 2010 2009
FICTIOUS Corporation, BALANCE SHEET
In thousands $

The whole ASSETS

Cash 400 200
Balance Sheet Marketable securities
Accounts receivable
200
600
-0-
800
Inventories 1,800 1,000
Total current assets 3,000 $ 2,000
Fixed Assets
Gross plant and equipment 11,000 10,000
Less: Accumulated depreciation -4,000 -3,000
Net plant and equipment 7,000 7,000
Intangible assets 1,000 1,000
Total assets $ 11,000 $ 10,000

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable $ 500 $ 400
Other current liabilities 500 200
Long-term debt 4,000 5,000
Total liabilities 5,000 5,600
Preferred stock (12.5%; $100 par value) 800 800
Common stock: ($1 par value) 1,500 1,200
Additional paid-in capital 1,500 800
Retained earnings 2,200 1,600
Total shareholders' equity 6,000 4,400
Total liabilities and shareholders' equity
$ 11,000 $10,000

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Balance Sheet questions

Que stio n: Pre se nt the Ba la nc e She e t fo r Ye a r 1 using the tria l b a la nc e b e lo w:

Tria l Ba la nc e Ye a r 1

Ac c o u n ts Pa ya b le 4,104

Ac c o u n ts Re c e iva b le 898
Solution:
Ba n k Lo a n Pa ya b le (d u e Ye a r 2 ) 1,646
BALANCE SHEET
Year 1
Bo n d s Pa ya b le (d u e Ye a r 16) 7,960 Assets € Liabilities & Eq €
Current assets Current Liabilities
Bu ild in g (n e t o f a c c u m u la te d d e p re c ia tio n ) 6,128 4,104
C a sh 20 Ac c o u n ts Pa ya b le

Ac c o u n ts Re c e iva b le 898 In c o m e Ta xe s Pa ya b le 183

C a sh 20
Me rc h a n d ise In ve n to ry 11,196 Ba n k Lo a n Pa ya b le (d u e Ye a r 2 1,646
)
C o m m o n Sto c k 766
O th e r C u rre n t Lia b ilitie s 1,473

Eq u ip m e n t (n e t o f a c c um u la te d d e p re c ia tio n ) 4,307 Fixed Assets NonCurrent Liabilities

O th e r No n c u rre n t Asse ts 1,151 Bo n d s Pa ya b le (d u e Ye a r 16 ) 7,960

Bu ild in g (n e t o f a c c u m u la te d d e p re c ia tio n ) 6,128 Shareholders Equity

In c o m e Ta xe s Pa ya b le 183
Eq u ip m e n t (n e t o f a c c u m u la te d 4,307 C o m m o n Sto c k 766
d e p re c ia tio n )
La n d 2,741
La n d 2,741 Re ta in e d Ea rn in g s 10,309

Me rc h a n d ise In ve n to ry 11,196 TOTAL Assets 26 441 TOTAL Liabilities & Eq 26 441

O th e r C urre n t Lia b ilitie s 1,473

O th e r No n c u rre n t Asse ts 1,151

Re ta in e d Ea rn in g s 10,309
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The Balance Sheet

Daniel PRONK
https://youtu.be/7THNE8xEcHk

Yahoo finance

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Required :

Present the balance sheet for year 6

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SOLUTION :

Balance Sheet
Asset Year 7 Year 6 Liabilities Year7 Year 6
- Current Asset - Current Liabilities
Cash 6 704 796 Account Payable 7 873 5 219
Account recievable 6 940 5 044 Salaries Payable 63 42
Inventories 9 000 10 083 Other Current Liabilities4 249 2 623
Other Current Assets 1 091 518 - Non Current Liabilities
Total Current Assets 23 735 16 441 Bonds payable (due year4 20)
602 10 313
Total Liabilities 16 787 18 197
- Non Current Asset Equity
Property, Plant, and Equipment
19 300 17 299 common stock 12 959 6 532
Other Noncurrent Assets 21 559 Retained earing 13 310 9 570
Total Assets 43 056 34 299 Total Liabilities & Equity
43 056 34 299

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Balance Sheet

Multiple choice questions :

MC1 Which of the following statements is incorrect?

 
(A) Assets – Capital = Liabilities
(B) Liabilities + Capital = Assets
(C) Liabilities + Assets = Capital
(D) Assets - Liabilities = Capital
 

MC2 Which of the following is not an asset?

 
(A)   Buildings
(B)   Cash balance
(C)   Debtors - Accounts receivable
(D)   Loan from K Harris

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Balance Sheet

MC3 Which of the following is a liability?

 
(A)   Machinery
(B)   Creditors for goods - Accounts Payable
(C)   Motor Vehicles
(D)   Cash at Bank

 
Current assets are cash and other assets that are
expected to be converted into cash or used up in the near
future, usually within __ months_______________ .

Securities are stocks (share) and bonds. They give valuable

rights to the entity that owns them. The U.S. Treasury
promises to pay stated amounts of money to those that own
treasury bonds.
Therefore, U.S. Treasury Bonds owned by a company ......
[are / are not] assets of the Company.

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Balance Sheet

Marketable securities are securities that are expected to be

converted into cash within a year. An entity owns these securities so
as to earn a return on funds that otherwise would be idle. Marketable
Securities are ... [current / noncurrent] assets.
 
PS. Also called "cash equivalents.“ or “short-term investments”

Inventories are goods being held for sale, as well as supplies, raw
materials, and partially finished products that will be sold upon
completion. For example, a truck owned by an automobile dealer for
resale to its customers ... [is / is not] inventory.
A truck owned by an entity and used to transport its own goods .......
[is / is not] inventory.

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Balance Sheet

Tangible assets are assets that can be touched; they have physical
substance. Buildings, trucks, and machines are
t ……….assets. They are also . . . [current / noncurrent] assets.

The other noncurrent asset items are intangible assets; that is, they
have no physical substance, except as pieces of paper.

The Investments consists of securities, such as bonds. If these

securities were expected to be tuned into cash within that period,
they would be listed as a current asset, M__________S_________.

Another noncurrent asset reported is Patents and Trademarks.

These are rights to use patents and rights to valuable brand names
or logos. They are recorded as an I………………..A…………………

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Balance Sheet

Shareholdre’s Equity consists of capital obtained from sources that are not
liabilities. Sources of equity capital are:
P……………Shares (Stock)
C…………… Shares and
R………….. E…………s = Accumulated profits or losses

The amount of equity that has been earned by the profitable

operations of the company and that has been retained in the entity is
called R………………… E………………….

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The opening Balance Sheet

Exercises :

Draw up G Putty's balance sheet from the following information as at 31 December 2021:

Capital 7,200

Debtors 1,200

Van 3,800

Creditors 1,600

Machines 1,800

Stock of goods 4,200

Cash at bank 300

Retained Earnings 2,500

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 Draw up G Putty's balance sheet from the following information as at 31 December
Balance Sheet
2021:

Assets Liabilities & Shareholder’s

Equity (or Capital)
The opening Balance Sheet
Current assets Current Liabilities
Exercises : SOLUTION Cash at bank 300
Debtors 1,200 Creditors 1,600
Stock 4,200 1.600
5.700

Fixed assets Long-term Liabilities 0

Van 3,800 Shareholder’s Equity

Machines 1,800 Capital 7,200
5.600 Retained Earnings 2,500
9.700

TOTAL ASSETS 11.300 TOTAL L & SH.E 11.300

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 To READ for next class:

The Essentials of Finance and Accounting for Nonfinancial Managers,

Auteur: Fields, Edward, Editeur: Amacom, 2011

Chapter 1, The BALANCE SHEET,

Pages 19-54

learning centreSCHOLARVOX

https://www.scholarvox.com/catalog/book/88811257

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