Question

Q2 to Q4- Use your own words to explain the following items of the balance sheet.

1. Account receivables
2. Inventory
3. Current assets
4. Net property, plant, and equipment
5. Goodwill
6. Total assets
7. Account payables
8. Current liabilities
9. Total liabilities and its difference from total debt
10. Shareholders’ equity

Answer 1

Account receivables

Accounts receivable (AR) is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Accounts receivables are listed on the balance sheet as a current asset. AR is any amount of money owed by customers for purchases made on credit.

Inventory

Inventory is the term for the goods available for sale and raw materials used to produce goods available for sale. Inventory represents one of the most important assets of a business because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders.

Current assets

Current assets represent all the assets of a company that are expected to be conveniently sold, consumed, used, or exhausted through standard business operations with one year. Current assets appear on a company's balance sheet, one of the required financial statements that must be completed each year

Net property, plant, and equipment

Property, plant, and equipment (PP&E) are long-term assets vital to business operations and not easily converted into cash. Property, plant, and equipment are tangible assets, meaning they are physical in nature or can be touched. The total value of PP&E can range from very low to extremely high compared to total assets.

Goodwill

Goodwill is an intangible asset that is associated with the purchase of one company by another. Specifically, goodwill is the portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process. The value of a company’s brand name, solid customer base, good customer relations, good employee relations, and proprietary technology represent some reasons why goodwill exists.

Total assets

Total assets refers to the total amount of assets owned by a person or entity. Assets are items of economic value, which are expended over time to yield a benefit for the owner. If the owner is a business, these assets are usually recorded in the accounting records and appear in the balance sheet of the business. Typical categories in which these assets may be found include:

• Cash

• Marketable securities

• Accounts receivable

• Prepaid expenses

• Inventory

• Fixed assets

• Intangible assets

• Goodwill

• Other assets

Depending on the applicable accounting standards, the assets that comprise the total assets category may or may not be recorded at their current market values. In general, international financial reporting standards are more amenable to stating assets at their current market values, while generally accepted accounting principles are less likely to allow such a restatement.

Account payables

Accounts payable (AP) is an account within the general ledger that represents a company's obligation to pay off a short-term debt to its creditors or suppliers. Another common usage of "AP" refers to the business department or division that is responsible for making payments owed by the company to suppliers and other creditors.

Current liabilities

Current liabilities are a company's short-term financial obligations that are due within one year or within a normal operating cycle. An operating cycle, also referred to as the cash conversion cycle, is the time it takes a company to purchase inventory and convert it to cash from sales. An example of a current liability is money owed to suppliers in the form of accounts payable.

Total liabilities and its difference from total debt

Total liabilities are the combined debts and obligations that an individual or company owes to outside parties. All assets of a company are either owned by the entity and classified as equity or are subject to future obligations and recorded as a liability. On the balance sheet, total liabilities plus equity must equal total assets.

When some people use the term debt, they are referring to all of the amounts that a company owes. In other words, they use the term debt to mean total liabilities.

Others use the term debt to mean only the formal, written loans and bonds payable.Others use the word debt to mean only the formal, written financing agreements such as short-term loans payable, long-term loans payable, and bonds payable.

Shareholders’ equity

For corporations, shareholder equity (SE), also referred to as shareholders' equity and stockholders' equity, is the corporation's owners' residual claim on assets after debts have been paid. Equity is equal to a firm's total assets minus its total liabilities.

Retained earnings is part of shareholder equity and is the percentage of net earnings that were not paid to shareholders as dividends. Retained earnings should not be confused with cash or other liquid assets. This is because years of retained earnings could be used for either expenses or any asset type to grow the business. Shareholders’ equity for a company that is a going concern is not the same as liquidation value. In liquidation, physical asset values have been reduced and other extraordinary conditions exist.