Balance Sheets

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Balance Sheets
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Agenda

• Origins
• Statement of net worth
• Statement of sources and uses
• Assets Equities
• Assets less equities 0
• Drs are plusses
• Crs are minusses
• Spreadsheet layout

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Luca Pacioli

• Greek learning to Alexandria
• Alexander takes it to the world
• Bishop Nestor goes into exile
• Islams caliphate moves to Baghdad
• Ben Tarik Al-Khworizmi
• Crusades and the Renaissance
• Counting numbers come to Europe!

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Databases

• Accounting is a data collection process
• We gather a data base
• From that data base we extract views
• Functional income statements
• Contribution income statements
• Financial statements are views
• Capture data cf. Walmart
• New careers in IT and accounting (XBRL)

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Modern Approach

• Balance sheet is central
• Cf. LIFO (income) and FIFO (bal. sheet)
• Deferred taxes
• Company has operating income of 100M
• Buys asset of 20 with 5 year life
• Uses straight-line for financial reporting
• Does 10, 5, 3, 2 for tax
• What is deferred tax?

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Plugging away

• If NW A - L then
• A L NW L (A - L)
• A tautology
• If NW Capital other stuff
• A L Capital other undefined stuff L
  Capital plug(s)
• My plug is bigger than your plug!!

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Assets

• Definition
• An economic resource (probable source of future
  benefits)
• Under control of entity (cf Enron)
• Preceded by transaction or event
• Mostly transaction
• More recently events e.g., pensions

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Cost of an asset

• All
• Necessary costs
• To bring to state and place of
• Intended use
• Datra Motors (SA)
• Osaka - Durban - Johannesburg
• Managerial accounting
• Garland Creations

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Liabilities

• Possible outflow of cash
• Stock options
• Legal or constructive obligation
• Measurement
• Generally at present value of future cash flows

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Owners equity

• Capital
• Contributed capital
• Par and paid-in capital is irrelevant except in
  bankruptcy
• Retained earnings -- the plug
• If it isnt an asset, it is a deduction from the
  plug
• We call this an expense
• If it isnt a liability, it is an addition to the
  plug
• We call this revenue
• Note the movement from balance sheet to income
• Other comprehensive income
• Even less defined that retained earnings -- the
  other other!