The Third Message

Dear,
I looked at your homepage. Your works surprised me. I will not be able to do like you. I would like to follow your example.

Sincerely,

Yas

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Dear Yas,

This week begins a long lesson on the balance sheet.

Sincerely,

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THE BALANCE SHEET

Double-entry accounting originated about 1200 A.D. in northern
Italy. The first financial statement was the Balance Sheet.

The balance sheet is the statement of a business's financial
position. The financial position is given by the equation:

Assets = Liabilities + Stockholders' Equity

Assets are economic resources. Liabilities are obligations. The
owners' equity is the difference between assets and liabilities.

In the United States, the balance sheet is "classified." In
a classified balance sheet, assets and liabilities are listed as
either "current" or "long-term" assets.

Current assets are assets available as cash within one year.
For example, these are current assets:

- cash
- accounts receivable
- inventory

Long-term assets have a life longer than one year. For example,
these are long-term assets:

- property and equipment
- land
- investments

Liabilities are listed as "current liabilities" and "long-
term" liabilities.

Current liabilities are usually obligations that must be paid
within one year. These are called "payables." For example, these
are current liabilities:

- accounts payable
- salaries payable

Long-term liabilities are due in more than one year. For
example, these are long-term liabilities:

- mortgage payable
- bonds payable

"Stockholders" is the name for the owners of a corporation.
The stockholders' equity is:

+ the owners' original investment
+ net earnings from the business
- dividends

A "dividend" is the name for the stockholders' withdrawals
(removal) of cash from the business. "Retained earnings" is the
name for net earnings kept in the business. In the U.S., there
are no legal reserves as there are in Japan.

American financial statements always have footnotes to explain
the accounts in detail.

As a example, we will start an American corporation.

Leo Phillips, Henry Martin and Nora Esposito are the stock-
holders in Delaware Parts, Inc. Delaware Parts sells motorcycle
parts in Delaware.

The company starts by incorporating in one of the 50 states.
Delaware Parts, Inc. is incorporated in the State of Delaware. The
U.S. government does not charter corporations.

The company has these transactions:

1. On January 10, 1996, Phillips put $20,000 cash into
the business in exchange for 2,000 shares of $10 par value stock.

2. Martin put $30,000 into the business in exchange for 3,000
shares of $10 par value stock.

3. Esposito put $40,000 into the business in exchange for 4,000
shares of $10 par value stock.

4. The company bought land for $8,000 and a building for $50,000.

When these entries are recorded in a journal, the entries are:

debit credit
_______ _______
1. Cash $ 20,000
Common Stock $ 20,000

(to record Phillips's investment)

2. Cash $ 30,000
Common Stock $ 30,000

(to record Martin's investment)

3. Cash $ 40,000
Common Stock $ 40,000

(to record Esposito's investment)

4. Land $ 8,000
Building 50,000
Cash $ 58,000

(to record investment in land & building)

The stockholders of Delaware Parts want to know the
financial position of the company after the stockholders made their
contributions of cash and real estate. The following balance sheet
shows this information:

Delaware Parts, Inc.
Balance Sheet
January 10, 1996

ASSETS: LIABILITIES: $ 0

Current Assets:
Cash $ 32,000

Long-term assets: STOCKHOLDERS' EQUITY

Land 8,000 Common stock,
Building 50,000 $ 10 par 90,000
________ ______
TOTAL LIABILITIES
AND STOCKHOLDERS'
TOTAL ASSETS $ 90,000 EQUITY $ 90,000
======== ======

Example: You can see the balance sheet for Exxon Corporation, the largest
oil company in the world, at:

http://www.exxon.com/
exxoncorp/shareholder_info/annual_96/annual96_financials8.html

If you have trouble typing this English, go to Exxon at

www.exxon.com

Then click on "Shareholder Information,"
then "1996 Annual Report of Shareholders"
then "1996 Annual Report"
then "Balance Sheet"

Questions:

1. What is a balance sheet?

2. What is stockholders' equity in the U.S.?

Vocabulary - Lesson 3

English Japanese
_________ ______________

accounts receivable

assets

balance sheet

cash

credit

current

debit

dividend

double-entry

equipment

inventory

investment

liabilities

payable

property

stockholders' equity