Accounting Unplugged. Financial Statements Balance Sheet. The Balance Sheet is the financial statement that summarizes the value of an entitys resources and the claims on those resources at any given time. Balance Sheet accounts start accumulating their balances from the beginning of the entity and continue until the end. This contrasts with the Income Statement whose accounts are reset to zero at the end of each fiscal business year. The Accounting Types reported on the Balance Sheet are Assets Assets are items of value that are owned by the business and their value is expected to last beyond the current fiscal business year. Liabilities are essentially debts, they are agreements to delay payments and so, are sources of funds because they provide a way to acquire or pay for goods and services without a direct transfer of cash at the time of the exchange. Equity Owners Equity is a source of funds through direct owner investment stock or owners capital accounts or owner re investment retained earnings when some or all of the income from the previous year is retained by the business rather than distributing it to the owners. The Balance sheet Equity Section refers to Total Equity which is Owners Equity Net Income. The Net Income portion is easily calculated because since the total debits and total credits of all financial accounts must be equal, and the Balance Sheet and Income Statement split the Accounts between them. The difference between the Balance Sheet Accounts will equal the difference between the Income Statement Accounts which is Net Income. Since Owners Equity is only part of Total Equity, Net Income can also be calculated using a rewrite of the Accounting Equation From Assets Liabilities Equity. To Assets Liabilities Total Equity Owners Equity Net IncomeMove Owners Equity to the other side of the equation as well and the equation becomes Assets Liabilities Owners Equity Net Income  or Net Income Assets Liabilities Owners Equity. Balance Sheet Draft The Balance Sheet does not contain any of the same accounts as the Income Statement, but it does summarize the Income Statement on one line called Net Income that is inserted without an account at the end of the Equity Section of each Balance Sheet. The Net Income entry completes the Accounting Equation for the Balance Sheet Assets Liabilities Total Equity Owners Equity Net IncomeSo, the listing of balance sheet accounts from the Income Statement post gives us a start in creating a Balance Sheet prior to year end closing entries. Account. Description. Debits. Credits. 10. Checking Account4. Accounts Receivable0. Office Equipment1,3. Office Furniture1,6. Accounts Payable1,7. Totals4. 7,3. 001,7. The Balance Sheet has a section for each of the elements of the Accounting Equation, Assets, Liabilities and Equity. It also divides Assets and Liabilities into Current and Long Term or Fixed Asset sections. The Current sections contain accounts for Assets and Liabilities that are expected to convert to cash within one year. Current Liabilities are the claims on Current Assets the information from these Sections provide the information for two important financial ratios that help to determine if the business is able to fulfill its short term obligations. Owners Capital On Trial Balance' title='Owners Capital On Trial Balance' />Current Ratio Current AssetsCurrent Liabilities. A Current Ratio of at least 1 1 or 1 indicate that there is at least one dollar of current assets for each dollar of debt. Quick Ratio Current Assets InventoryCurrent Liabilities. A Quick Ratio of at least 1 1 indicates that there is at least one dollar of cash or cash equivalent including accounts receivable for each dollar of debt. Balance Sheet Format To convert the account listing above to a Balance Sheet format, Ill add some section headings and a line for the Net Income from the previous Income Statement post. Balance Sheet. Assets. Current Assets. 10. Checking Account4. Fixed Assets. 15. Office Equipment1,3. Office Furniture1,6. Total Fixed Assets2,9. Total Assets4. 7,3. Liabilities and Equity. Current Liabilities. Accounts Payable1,7. Total Liabilities1,7. Equity. Net Income4. Total Liabilities and Equity4. Assets Liabilities Equity. The the first thing I check when I read a Balance Sheet is whether it is in balancethe accounting equation is true. Once I know it balances, I can focus on the substance of the report. Notice that the Net Income entry doesnt have an account number beside it. Net Income does not have an account, it is the difference between the Balance Sheet Accounts. It is also the difference between the Income Statement Accounts. Book Values Each item on the Balance Sheet is stated at its original value or cost. Since the accounts accumulate their balances from the beginning of time, each balance sheet item also stays there at its original value until it is sold, written off or satisfied debts paid off or equity repurchased. Items that are listed on the Balance Sheet do lose their value over time so instead of reducing their original account values, contra accounts are used to write down, depreciate or amortize them. Contra Accounts are the same Accounting Type as their counterparts but if their counterpart is a debit account, the contra account is a credit account. The Net Value of the Original Account and the Contra Account together reflects the decrease in book value without losing the historical value. Contra Accounts like Accumulated Depreciation prevent items from falling off the Balance Sheet while they are still owned by the entity because when the items value eventually depreciates to zero, it is still part of the original account balance. Owners Capital On Trial Balance' title='Owners Capital On Trial Balance' />In this lesson well look at an example of a statement of owners equity. In common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. Read the latest wealth management insights from our experts. So youve got a great idea for a business. Here are the practical steps you need to take to make that idea a reality, from setting goals to choosing the right type of. Depreciation is determined by type of fixed asset. Depreciation methods, classes of assets and examples are listed in IRS Publication 9. Sometimes entities use different depreciation methods for booktax purposes. Always ask a tax professional for guidance in making decisions that have tax implications. Sony Vegas Pro 10 Crack Serial Free. The purpose of this entry is to demonstrate basic depreciation entries rather than depreciation calculations. I will use straight line depreciation and assume that the assets were put into service on January 1st. Publication 9. 46 pg 3. For the depreciation entry I will add a contra asset account and a depreciation expense account. Account. Description. Debits. Credits. 72. Depreciation Expense4. Accumulated Depreciation Office Equipment2. Accumulated Deprectiation Office Furniture2. Balance Sheet After Closing Entries At the end of each year when the Income Statement accounts are reset to zero, the difference between their debit and credit balances Net IncomeLoss is posted to a Balance Sheet Equity account called Retained Earnings for corporations or Owners Capital for other types of organizations. An example of this entry can be found at the end of the Income Statement post. After the depreciation entry above, expenses were increased and net income was decreased by 4. After the depreciation entry is appended to the closing entries to the Income Statement, our Balance Sheet looks like this. Note the change from Net Income with no account number to Retained Earnings with the account number 3. The entry to account 3. Balance Sheet. Assets. Current Assets. 10. Checking Account4. Total Current Assets4. Fixed Assets. 15. Office Equipment1,3. Office Furniture1,6. Accum. Depreciation 4. Total Fixed Assets2,4. Total Assets4. 6,8. Liabilities and Equity. Current Liabilities.