FA30 - Merchandiser's Financial Statements - Balance Sheet

Summary

In this instructional video, the presenter guides viewers through the creation of a balance sheet for Julie's Plumbing Supplies as of March 31, 2024. They begin by listing assets, including cash, receivables, inventory, and equipment, and then move on to liabilities such as accounts payable, wages payable, and a bank loan. Shareholders' equity is derived from the statement of changes in equity, with common shares and retained earnings totaling the equity amount. The presenter emphasizes the importance of accuracy, demonstrates how to correct mistakes, and concludes with a balanced sheet, highlighting the process's educational value.

Takeaways

• 📋 The script is a tutorial on creating a balance sheet for Julie's Plumbing Supplies as of March 31, 2024.
• 💼 The balance sheet is structured with assets on the left, liabilities on the right, and shareholders' equity listed later on the right.
• 💰 The company's most current asset is cash, amounting to $24,000.
• 📈 Accounts receivable are calculated by subtracting the allowance for doubtful accounts from the total receivables, resulting in a net of $15,000.
• 🔄 Prepaid insurance, inventory, and equipment (net of depreciation) are included in the current and long-term asset calculations.
• 🧮 Total current assets are calculated to be $99,000, and total assets are $214,000 after adding the net equipment value.
• 📉 Liabilities include accounts payable, wages payable, unearned revenues, and a long-term bank loan, totaling $111,000.
• 🏦 The long-term liability is a bank loan payable amounting to $84,000.
• 📊 Shareholders' equity is derived from the statement of changes in equity, with common shares and retained earnings totaling $93,000.
• 🔄 There was a moment of doubt regarding the total assets and liabilities summing up to $204,000, but it was quickly corrected.
• 👍 The video encourages viewers to like and subscribe if they find the tutorial helpful.

Q & A

What is the purpose of the balance sheet being discussed in the script?

The purpose of the balance sheet is to provide a snapshot of Julie's Plumbing Supplies' financial position as of March 31st, 2024, by listing the company's assets, liabilities, and shareholders' equity.

What is the total amount of cash that Julie's Plumbing Supplies had according to the script?

Julie's Plumbing Supplies had a total cash amount of twenty-four thousand dollars.

How does the script handle accounts receivable and the allowance for doubtful accounts?

The script calculates net receivables by subtracting the allowance for doubtful accounts ($3,000) from the total accounts receivable ($18,000), resulting in a net of $15,000.

What is the total of current assets calculated in the script?

The total of current assets is calculated by adding cash ($24,000), net receivables ($15,000), inventory ($54,000), and prepaid insurance ($6,000), which equals $99,000.

What is the process for determining the net value of equipment in the script?

The net value of equipment is determined by subtracting the accumulated depreciation ($20,000) from the gross value of equipment ($125,000), resulting in a net value of $105,000.

What is the total value of assets listed in the balance sheet according to the script?

The total value of assets is the sum of current assets ($99,000) and net equipment ($105,000), which equals $204,000.

What are the current liabilities listed in the script for Julie's Plumbing Supplies?

The current liabilities listed include accounts payable ($15,000), wages payable ($7,000), and unearned revenues ($5,000), totaling $27,000.

What is the total amount of long-term liabilities mentioned in the script?

The total amount of long-term liabilities is a bank loan payable, which is $84,000.

How is the shareholders' equity calculated in the script?

Shareholders' equity is calculated by considering the common shares ($1,000) and retained earnings ($92,000), totaling $93,000.

What is the grand total of liabilities and shareholders' equity in the balance sheet as per the script?

The grand total of liabilities and shareholders' equity is the sum of total liabilities ($111,000) and total shareholders' equity ($93,000), which equals $204,000.

What mistake was made in the script regarding the total calculation and how was it corrected?

Initially, the script incorrectly calculated the total liabilities and shareholders' equity as $200,000. The mistake was corrected by recalculating the sum of $111,000 (total liabilities) and $93,000 (total shareholders' equity), which correctly equals $204,000.

Outlines

00:00

📊 Preparing the Balance Sheet for Julie's Plumbing Supplies

The speaker begins by outlining the process of creating a balance sheet for Julie's Plumbing Supplies as of March 31, 2024. They emphasize the importance of structuring the balance sheet with assets on the left, liabilities on the right, and shareholders' equity in between. The speaker then delves into the specifics of the current assets, starting with cash of $24,000, followed by the explanation of accounts receivable and the allowance for doubtful accounts, which results in net receivables of $15,000. Inventory and prepaid insurance are also included as current assets. The calculation for net receivables is shown, and the total current assets are summed up to be $109,000. The speaker then moves on to long-term assets, specifically equipment and its accumulated depreciation, resulting in a net equipment value of $105,000. The total assets are calculated to be $214,000. The process is methodical, with an emphasis on accuracy and clarity.

05:11

🧾 Analyzing Liabilities and Shareholders' Equity in the Balance Sheet

In the second paragraph, the speaker focuses on the liabilities and shareholders' equity sections of the balance sheet. They start by identifying current liabilities, which include accounts payable, wages payable, and unearned revenues, totaling $27,000. A unique item, unearned revenues, is explained as a liability for services paid for in advance but not yet delivered. The speaker then discusses the long-term liability, which is a bank loan payable amounting to $84,000. The total liabilities are calculated to be $111,000. Moving on to shareholders' equity, the speaker references the statement of changes in equity, identifying common shares and retained earnings as the components, which sum up to $93,000. A minor error is made in the calculation, which is quickly corrected, affirming that the total liabilities and shareholders' equity equal the total assets, $204,000. The speaker concludes by emphasizing the importance of accuracy in financial statements and encourages viewers to review previous chapters for a deeper understanding.

Keywords

💡Balance Sheet

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time, listing its assets, liabilities, and shareholders' equity. In the video, the balance sheet is being prepared for Julie's Plumbing Supplies as of March 31st, 2024, and it is the focus of the tutorial to demonstrate how to compile financial data into this statement.

💡Assets

Assets are resources owned by a company that have future economic value. In the context of the video, current assets such as cash, receivables, inventory, and prepaid insurance are discussed, along with long-term assets like equipment net of accumulated depreciation, which are all listed on the left side of the balance sheet.

💡Liabilities

Liabilities are obligations or debts that a company owes to others. The video script mentions current liabilities like accounts payable, wages payable, and unearned revenues, as well as long-term liabilities such as a bank loan payable, which are all listed on the right side of the balance sheet.

💡Shareholders' Equity

Shareholders' equity, also known as owner's equity, represents the residual interest in the assets of a company after deducting liabilities. In the video, it is derived from the statement of changes in equity and includes common shares and retained earnings, which are part of the total equity section of the balance sheet.

💡Current Assets

Current assets are assets that are expected to be converted into cash or used up within one year or one operating cycle of the business. The script details current assets such as cash, net receivables, inventory, and prepaid insurance, which are all essential for calculating the company's liquidity.

💡Net Receivables

Net receivables refer to the amount of money owed to a company by its customers, net of any allowances for doubtful accounts. In the video, the presenter calculates net receivables by subtracting the allowance for doubtful accounts from the gross accounts receivable, resulting in a figure of $15,000.

💡Accumulated Depreciation

Accumulated depreciation is the total amount of depreciation that has been expensed against an asset since it was first used. In the script, it is used to calculate the net value of equipment by subtracting it from the gross value of the equipment, showing the equipment's current value on the balance sheet.

💡Unearned Revenues

Unearned revenues, also known as deferred revenues, represent amounts received in advance for goods or services that have not yet been delivered. The video mentions unearned revenues as a liability, indicating that the company has an obligation to fulfill the services for which payment has been received in advance.

💡Retained Earnings

Retained earnings are the cumulative net income or profit of a company that has been kept or 'retained' in the business rather than distributed to shareholders as dividends. In the video, retained earnings are part of the shareholders' equity section and are calculated from the statement of changes in equity.

💡Trial Balance

A trial balance is an internal control used to check the accuracy of a company's accounting by listing all debit and credit accounts in two columns to ensure they are equal. The video script mentions using the trial balance to gather the necessary information for preparing the balance sheet.

💡Allowance for Doubtful Accounts

Allowance for doubtful accounts is a contra-asset account that represents an estimate of the amount of accounts receivable that a company believes will not be collected. In the script, the presenter uses this allowance to adjust the gross receivables to arrive at the net receivables figure.

Highlights

Introduction to creating a balance sheet for Julie's Plumbing Supplies.

Explanation of the balance sheet structure with assets on the left and liabilities and shareholders' equity on the right.

Determination of the date for the balance sheet as March 31st, 2024.

Listing of assets starting with the most current, such as cash at twenty-four thousand dollars.

Introduction of receivables and the concept of allowance for doubtful accounts.

Calculation of net receivables by subtracting the allowance from the total receivables.

Inclusion of inventory and prepaid insurance as current assets.

Summation of total current assets to reach an interesting number.

Identification of equipment and accumulated depreciation as long-term assets.

Calculation of net equipment by subtracting accumulated depreciation from the equipment cost.

Listing of total assets and the process of double-underline and dollar sign notation.

Discussion of liabilities including accounts payable, wages payable, and unearned revenues.

Explanation of unearned revenues as a liability despite being labeled as revenue.

Calculation of total current liabilities and identification of the bank loan as a long-term liability.

Summation of total liabilities and the importance of checking for accuracy.

Derivation of shareholders' equity from the statement of changes in equity.

Listing of common shares and retained earnings to calculate total shareholders' equity.

Final verification of the balance sheet's totals for assets, liabilities, and shareholders' equity.

Correction of a mistake in the calculation and the importance of accuracy in financial statements.

Completion of the balance sheet and the satisfaction of having a balanced statement.

Encouragement for viewers to engage with the content and subscribe to the channel.

Transcripts

okay we have been working through this

Julie's plumbing supplies problem we've

done the income statement we've done the

statement of changes in equity and now

it's time to work on the balance sheet

so let's get started with the title as

always with a balance sheet or any

statement it's gonna be a three liner

I'm a I've left sort of wider room for

my balance sheet so I'm gonna sort of

leave more width

we've got Julie's plumbing whoa

Plumbing Supplies we are preparing a

balance sheet and balance sheets just

get dated and the date here is March

31st 2024 we're gonna list assets on the

Left we're gonna list liabilities on the

right and when we get to it will list

shareholders equity somewhere down the

page on the right so looking over to our

trial balance here we basically have all

the stuff we need for assets and

liabilities right here and for

shareholders equity it comes from the

statement of changes in equity so assets

and liabilities are what we're worried

about let's start with the most current

and the most current is cash and we'll

begin with cash our company's cash was

twenty four thousand bucks

now next we have receivables and this is

interesting

we hadn't done chapter the chapter on

receivables before but now we've done it

and we have accounts receivable and we

have the account below it allowance for

doubtful accounts this is another one of

those darn contra accounts what does it

mean it means eighteen thousand is how

much I'm legally owed but I I've

estimated that three thousand of that

eighteen thousand isn't coming in so our

net receivables is the less than

eighteen thousand eight to eighteen

thousand minus three it's fifteen

thousand so let's put that in here

a our net and it's fifteen thousand and

just below at the bottom of my page I'm

gonna show that calculation I'm going to

say AR minus the allowance equals my AR

net and in this case it's eighteen minus

three equals fifteen

okay so there we have AR we have an

inventory of course 54,000 and prepaid

insurance six thousand

prepaid insurance and prepaid insurance

is absolutely current as is inventory so

adding this up sixty ninety nine

thousand I believe is our total kind of

an interesting number total current

assets now in terms of long-term assets

I see equipment and I see accumulated

depreciation equipment well again it's

an asset with a contra asset

I'm gonna go 125 - money to get 105

right equipment net so I'm gonna have

long-term assets and under there I'll

have equipment net and oh you know what

I didn't total in the right spot my

total of course goes to the left here

ninety nine thousand my equipment net I

believe was 125 minus 20 its 105 and

that gives us our total assets our grand

total here 99 plus 105 is 214

that's it we've done our total assets

double underline their dollar sign at

the top of each column and beside the

bottom line I'm not spending tons of

time explaining each step because if

you're shaky about your financial

statements go back to chapter 1 and get

a feel for them this is started as the

build on unto that looking at

liabilities accounts payable wages

payable unearned revenues would all be

current bank loan payable long term

there's no current portion noted we'll

just assume there isn't one

so accounts payable wages payable

unearned revenues all current lie T's ap

wages payable unearned revenues unearned

revenues might be have been one we

haven't seen before on a balance sheet

but of course it's even though it says

revenue it's a liability it's when

somebody's paid doing in advance for a

service and you haven't delivered the

service so it's something that you owe

15 7 + 5 total here is 27,000 that's our

total current on to long term

liabilities and it's really just the one

so I'll call it a liability if you call

the liabilities that would be fine with

me it is a bank loan payable and the

amount here is 84 grand so the total

liabilities 27 + 84 is a hundred and

eleven thousand dollars okay now we just

have to do our equity and our equity

doesn't come from here it comes from our

statement of changes in equity we have a

thousand of common shares nine

two of retained earnings that's it a

thousand of common shares ninety-two

thousand of routine earnings

shareholders equity common shares a

thousand retained earnings ninety two

thousand this totals to ninety three

thousand that's our total s EE our total

shareholders equity bringing us down to

our grand total total liabilities and

shareholders equity 111 plus 93 it

equals two hundred oh is that right

111 plus 93 I feel like it's right but

maybe not having second thoughts here

111 plus 93 I think I'm off 1 1 1 plus

93 204 I'm off by 10 grand what am i off

by 10 grand I'm not sure why Oh

on the other side 99 plus 105 is 204

what a silly mistake it does equal 204

over here just shows you how to quickly

fix a mistake put a dollar sign on top

of each column a dollar sign beside the

bottom line and there we have it ladies

and gentlemen a balance sheet that

balance is so we've done it we've solved

problem 6 for a as always if this video

has been useful to you if it's been

helpful to you I'd love you I love you

I'd love it if you hit the thumbs up

button and would consider subscribing to

this channel on YouTube alright hope

this helped have a great day

talk to you soon