Hi my name is Grandpa John, I will guide you
through the accounting section of the MBA in pills offered by the four week MBA. for more business educational videos. check out this link. we saw in the accounting equation video, that
the balance sheet, is divided in two main sections. the asset section, and the liability and equity
section. more in detail. the asset section is comprised of current
assets, and non current assets. main current assets are. cash, accounts receivable, inventories. prepaid expenses. the current assets, are called such, because
they are usually on the balance sheet for one year, or less. the current assets are usually listed, on
the balance sheet, according to their degree of liquidity. therefore, cash is the most liquid, while
prepaid expenses, the least liquid.cash, is available at any time. accounts receivable, sum of money to be received
from customers. inventory, a list of goods to be sold. prepaid expenses, sum paid in advance. the non-current assets are also called, long
term assets. indeed, those are assets that will stay on
the balance sheet for years. such as plants, equipment, furniture, and
so on. on the other side of the balance sheet, we
have, the liabilities and equity. liabilities, are comprised of current liability
and non current liability. current liabiltiies, stay on the balance sheet,
for less than a year. non current, for more than a year. Let's see the main current liabilities. accounts payable, sum of money not yet paid
to suppliers, that will be washed away, once paid. accrued expenses, sum of money to be paid
in the future, such as, payrolls, or tax the main non current liability is, long term debt. such as loans contracted with the bank. then, the equity. in this sub section are reported items, such
as, owner's equity, retained profits and other kind of stocks, issued by the organization. lets see now few examples. jim sold $100 worth of clothes. his customer, Janet, paid with credit card. therefore, this will generate an account receivable,
for $100, on Jim's balance sheet. jim, has to pay for utilities. since it is the first time he set up the account.
he has to pay for $1,000 in advance. this advanced payment, will be shown as, prepaid
expense. jim, this month, did not sell part of the
clothes he bought in the previous month. the unsold clothes, will become part of his
inventories. then, Jim had to pay $50,000 cash, to renovate
the store. this $50,000 will show on his balance sheet,
as building improvement, therefore, a long term fixed asset. jim, buys clothes for $1,000, with credit
card. the payment will be processed in 30 days. this transaction, will generate an account
payable, on jim's balance sheet. Jim, goes to the bank, to ask for a long term
loan. the bank gives Jim, $50,000. this will generate a bank loan. showed under long term liability, on Jim's
balance sheet. after a while. Jim accepts a new partner, Jasmine. Jasmine puts $50,000 and becomes equity partner. this transaction, will show on the balance
sheet, as owner's equity. in conclusion, the balance sheet, is one of
the main financial statements. it is like an instant picture. and it helps us to assess how risky a business
is. in fact, when a company is too indebted. you can see it from the balance sheet. if liabilities are too much in comparison
to equity, this can be very dangerous for the business.to summarize. the balance sheet is comprised of two main
sections. it is an instant of the business. and, allows us to see how risky a business
is. if you liked this video, and you found the
topic interesting please live a comment at these links. if you would like to learn more, about other
topics, contact us. Grandpa John here. You just enjoyed the accounting section of
the MBA in pills offered by the four week MBA.
