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How do you create a business letter that offers a sincere apology that will help support the business relationship? Do you run a child daycare, music instruction, photo studio, home product distribution, taxidermy or other home based business? The quality of service provided to each of our policyholders is just as important as the service you provide your customers.
If you prefer not to give personal information over the internet, please fill out the required contact information and we will call you. Now we’ll look at the other side of the balance sheet, which has liabilities and stockholder equity, and initially we’ll focus on liabilities.
Mistakenly people assume their home owners policy will cover losses that would arise from these types of businesses. Please visit the What You'll Need page to see what information to have ready when we call you.
A balance sheet is a statement of the financial position of a company at a specific point in time. The first thing you will notice is that it is as of December 31, 2011, so it shows the amounts on that specific date, and again, it’s in thousands of dollars.
These are items that have value but are not expected to be turned into cash during the next year in the normal course of operations. Just as with assets, there are current liabilities, those items that need to be paid within the next twelve months, and long term liabilities, or those items that aren’t due for more than a year.
Remember, you can download the Financial Statement Analysis eBook, which includes over 50 definitions and ratio calculations.  It also includes an excel spreadsheet that will calculate key ratios when you input financial data. Current assets are cash, cash equivalents, and any asset that is expected to be turned into cash in the next twelve months.
In this case we have first, the fixed assets: the company’s investment in property, plant, and equipment. Typical current items would be accounts payable, the bills from vendors that have not yet been paid, and the current portion of long-term debt. If you need debt collection assistance, we are specialists in large business to business claims and we can refer you to other agencies if your needs do not fit with our expertise. Typically they are reported at the same time as an income statement, so at the end of a month, the end of a quarter, or the end of a year.


On the left side is assets and on the right side there are two major categories with bolded titles: liabilities and stockholder equity.
That is what makes an asset a current asset – that it will become cash during the normal course of operations in the coming year. It is called book value because it is an accounting measure, and not necessarily what the business would actually sell for.
When you or an employee causes a problem with a customer, a supplier, or a vendor, it is important to take steps to rectify the situation and to make sure the relationship stays strong. But it is for a specific point in time whereas the income statement is for a period of time. The balance sheet needs to balance, and that means the value of total assets, which in this case is $8,374,000, needs to equal the value of total liabilities and equity, which we see is also $8,374,000. Cash equivalents are financial instruments that can easily be turned in to cash such as certificates of deposits or CDs.
The cumulative amount originally spent to purchase fixed assets is shown as the Gross Value, which for this company totaled just over $2 million. Current liabilities will also include any taxes that aren’t paid or other expenses that we know we have to pay but we don’t actually have an invoice for yet.
Shareholders Equity is made up of two components: the amount of money that was invested in the company by shareholders by purchasing stock and then the retained earnings over the course of the operation of the company.
If it was a more personal infraction, then the letter is addressed to the wronged person directly. Sometimes the balance sheet is referred to as the statement of net worth, because it does show the equity value or net worth of the business.
If a balance sheet doesn’t balance, that means there is something wrong with the financial statements. Depreciation expense is determined by accounting rules to expense the cost of fixed assets over their useful life.
An example of accrued expenses is when you use a law firm, and you know by the end of the month that you owe them money but they haven’t sent their invoice yet, so you estimate the amount owed and show that as an accrued liability.
It is reduced when dividends are given to shareholders, since those earnings are no longer retained but are being distributed. These are assumed to have very short terms, typically net 30 or net 60 days, and therefore they can be turned into cash within a year and that’s why they are a current asset.


For example the computer on your desk may have cost the company $1,000 when purchased and this $1,000 is included in the gross value. Adding up all these current liabilities, also known as short-term liabilities, shows a total of $1,839,000 for this company. Inventory includes raw materials, work in process and finished goods and the expectation is that the inventory on a specific date will be sold during the next year and will be replaced with new inventory.
The company will have depreciation expense of $200 a year for 5 years if that is the expected useful life of the computer, and after three years of $200 depreciation expense annually, the accumulated depreciation would be $600. This company also had some long-term debt that does not have to be paid back in the next 12 months, so that’s recorded as a long-term liability. So for this company the amount of investment was relatively small—only $194,000—but over the years they have accumulated over $4 million in net income as shown in the value of retained earnings.
The net value of property, plant, and equipment is calculated by subtracting the accumulated depreciation from the gross value.
We add the long-term liabilities to the current liabilities and we get the total liabilities of $4,171,000. For example, if you pay your insurance bill at the beginning of the year and it’s good for 12 months, most of payment is a prepaid expense for insurance coverage to be provided throughout the year, not just the day the bill was paid.
Another long-term asset is a note receivable for $349,000 that is not due in the next 12 months. Now as we said before, the balance sheet needs to balance, so we add total liabilities and total shareholder’s equity together, which $8,374,000, and as we saw, this is the same amount as total assets. Deposits with utility companies or for short-term leases are also included in other current assets. If some of the note receivable was due in the next 12 months, that portion would be shown in the current assets category.
We take the total of these non-current assets, including the fixed assets, and we add that to the current asset, and that gives us a total value of assets of $8,374,000.



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