Balance sheet: essential financial statement

Janis Weber here, and I'm talking to you today about financial accounting, and this is our second talk. So we're going to be covering the balance sheet today. I would like to just give you a short overview of this very critical essential financial statement.

But before I do, let me introduce myself. I am a CPA. I have worked in public practice for quite a few years, and then I switched to become an accounting educator and I have enjoyed both careers, honestly. Accounting is just a great field to be in. I hope I can spark your interest so that maybe you'll choose to work with accounting also.

These are just some basic elements that would be included in a balance sheet. We've already discussed in a previous talk the accounting equation and the fact that assets equal liabilities and equity. This is just further detailing that and including some of the types of accounts that would fall under these different categories. For assets, you would have your cash account, which could represent currency that's currently in your hand or more likely would include the currency that's deposited in your bank account. So that cash account is indicating those bank accounts, and then accounts receivable is the type of account that's tracking how much your customers owe you for sales you have made but not collected. Then you have prepaid expenses and inventory, which is another type of prepaid, where you have paid for costs that you're going to have in your business in the future, but these accounts are tracking the cost because it is as an asset because it's not time yet to show them as an expense. They've been paid for before they're helping you produce income. So they sit on your balance sheet as a resource of the company, an asset. Then you have more long term investments that are showing up as assets on your balance sheet, like land that you've purchased or buildings, equipment. And then investments like stocks and bonds. There's a whole lot of other assets you could have, but these are just some of the most frequently seen assets that show up on a balance sheet. Then the balance sheet also has, of course, the liabilities, which are the claims of the creditors. So one claim of a creditor that's very common the most current one is the most liquid one, I guess, that's going to come due soon is accounts payable, and that is the amount that you owe to your vendors that are supplying you for whatever product or service that you're providing. Usually, they extend credit for whatever goods they give you, and then you pay them in the following month or sometime in the future. But that's accounts payable. It represents expenses that are going to be paid later, but they have already been obligated for. Then accrued expenses are similar to that, but they just generally are talking about operating expenses such as utilities and just everyday operations and not the product itself. That's accrued expenses. I could be sales tax payable or a lot of different kinds of payables. But they wouldn't generally be related to your product that you're selling and making a selling, they would be instead the operating costs. Then, unearned revenue is a different kind of liability that doesn't represent cash that we're going to pay in the future. It represents something else that we owe, which is our goods or services. So this is when we collect cash in advance for something we're going to provide to our customer, either goods or services. If we haven't actually delivered the goods, then we can't show it as revenue, so we put it into a liability account called unearned revenue. We're going to fulfill the obligation in the future. Then you have more long-term liabilities like notes payable, where you borrow money from the bank, or bonds payable, where you issue bonds to the public, and that's their form of investing in your company by loaning your company money, and then you pay them back with interest. That's bonds payable. These are very deep subjects we're discussing, but this is just an overview because this is what's falling on the balance sheet. Then for the equity accounts,