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Understanding Balance Sheet Components: Current and Long-term Assets, Liabilities, and Equity

This guide explains the main components of a balance sheet, focusing on current and long-term assets, liabilities, and owner's equity. Current assets include cash and receivables expected to be used within a year, while long-term assets encompass property, equipment, and intangible assets like patents and trademarks. Liabilities are categorized into current obligations due within a year and long-term debts. Owner's equity represents the capital contributed by shareholders and retained earnings for business growth. A comprehensive overview for financial understanding.

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Understanding Balance Sheet Components: Current and Long-term Assets, Liabilities, and Equity

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  1. Balance Sheet

  2. Current Assets • Current assets – those likely to be used or consumed within one year. • Cash and cash equivalents • Accounts Receivable – right to receive money from customers in the future (IOU to you) • Inventories - could be raw materials and finished goods.

  3. Long-term Assets • Noncurrent assets (long-term assets) – those assets likely to provide economic benefit for more than one year. • Property, plant and equipment - physical assets used in the business • goodwill and acquired intangible assets -assets without physical substance that provide legal and other future economic benefits. • (Ex. of intangible assets are patents, trademarks, brand names, franchises, etc.)

  4. Liabilities • Current liabilities – those likely to be paid within one year • Accounts payable – amounts owed to suppliers of goods/services. (IOU’s to others) • Noncurrent (long-term) liabilities – those obligations that extend beyond one year. • Notes Payable (loan of over one year)

  5. Owner’s Equity • Contributions made by owners (shareholders) and earnings reinvested in the business (retained earnings). • Individuals purchase stock and become part owners of the company. They contribute capital for the company to use. • Corporations rarely return each year’s income to the owners in a form of a dividend. Usually the Corporation retains a portion of the annual earnings for future growth of the business. • Ex. Shareholders Capital/Stockholder equity • Retained Earnings

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