Intangible assets intangible assets are items that

This preview shows page 9 - 11 out of 13 pages.

Intangible Assets: Intangible assets are items that have a financial value but do not have a physical form. These would be things like trademarks, patents, and copyrights. Current Liabilities: Like current assets, these are liabilities that are due to be paid within a year or the operating cycle, whichever is longer. Current liabilities include accounts payable, salaries payable, taxes payable, unearned revenue, and so forth. Long-Term Liabilities: Liabilities due more than a year from now would be reported here. These would include notes payable, mortgage payable, bonds payable, and so forth. The Equity section of a classified balance sheet does not change. We will learn about the expanded equity section later in the course. Using the information for MicroTrain, the financial statements would be: MicroTrain Company Income Statement For Year Ended December 31 Revenues: Service Revenue $ 36,500 Interest Revenue 600 Total Revenues $37,100 Expenses: Salaries Expense 18,360 Rent Expense 1,200 Utilities Expense 500 Insurance Expense 200 Supplies Expense 7,000 Depreciation Expense 750 Total Expenses 28,010 Net Income (37,100 – 28,010) $ 9,090 The net income gets carried over to the statement of retained earnings. We will also use the retained earnings balance from the
adjusted trial balance as the beginning balance. There are no dividends listed on the adjusted trial balance, so MicroTrain did not pay dividends. MicroTrain Company Statement of Retained Earnings For Year Ended December 31 Beginning Retained Earnings $ 6,100 from the adjusted trial balance Net Income 9,090 from the income statement $15,190 Dividends 0 No dividends paid this year. Ending Retained Earnings $15,190 goes to the balance sheet The calculated ending balance will be reported as the Retained Earnings amount on the balance sheet. We are doing the Classified Balance Sheet showing the subgroups for assets and liabilities in report form. MicroTrain Company Classified Balance Sheet December 31 Assets Current Assets Cash $10,000 Accounts Receivable 25,000 Interest Receivable 600 Supplies 1,500 Prepaid Insurance 2,200 Total Current Assets $39,300 Plant Assets Trucks 40,000 Less: Accum. Depreciation—Trucks ( 750) Total Plant Assets 39,250 TOTAL ASSETS $78,550 Liabilities and Equity Current Liabilities Accounts Payable 25,000 Unearned Revenue 3,000 Salaries Payable 360 Total Current Liabilities 28,360 Equity Common Stock 35,000 Retained Earnings 15,190 Total Equity 50,190 TOTAL LIABILITIES AND EQUITY $78,550 Notice how accumulated depreciation, a contra-account, reduces the asset account it is related to in the Plant Asset section. Remember, the balance sheet proves the accounting equation (ASSETS = LIABILITIES + EQUITY) and must always be in balance. Why do we need these groupings? We need them because they make it easier for investors to quickly calculate ratios—for example, the current ratio . The current ratio measures how much in assets the company has available now to pay liabilities that are due in the next year. The current ratio uses current assets and current liabilities: Current Ratio = Current Assets Current Liabilities We can calculate MicroTrain’s current ratio as follows: Current Assets = 39,300 = 1.39

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture