I can’t believe it, but we’re at the last post of this series! Well, for now at least. I could talk about this stuff all day, ☺, but with this post I’ll have completed my mission: explaining the basic parts of the financial statements in a way that non-accounting people can understand.
Well, I hope I have anyway!
For me, the financial statements aren’t just a way to keep track of my checkbook balance, I use them assess if my company is meeting the goals I’ve set, and if I’m spending my money the way I intend to in order to meet those goals. Once you have a basic understanding of what the pieces and parts of the Balance Sheet and Income Statement are, you can then move on to how they work together and what they can tell you.
When we talked about the Balance Sheet and Liabilities, we briefly went over Current Liabilities. To review, Current Liabilities are those things we’re going to owe someone else or another company within the next twelve months. Here are some of the more common things you’re going to have to deal with:
-Accounts Payable
-Accrued Expenses
-Payroll Liabilities
-Sales Tax Payable
-Short-term portion of long-term debt (which isn’t as hard as it sounds.)
Now, let’s look at these a bit closer:
Accounts Payable – really confusing term that means bills you owe now.
Intangible Assets are the last type of assets we’re going to talk about. These are assets that some of you may have never even heard of, but all of them are assets that don’t quite fit in Current Assets or Fixed Assets. In a way, you could think of them as “long-term” assets because they have value for longer than twelve months.
Here are some examples:
-Start-up Costs
-Goodwill
-Patents, trademarks, copyrights.
Start-up costs are expenses you incur before you actually start the business, like lawyer fees to incorporate, for example.
Okay, you guys are going to love this! Remember our definition of Assets: Things that have value or usefulness.
Well, Fixed Assets fall into both groups, but probably more in the usefulness category than the value category (although all Fixed Assets have value).
Fixed Assets are items you’ve bought to USE in your business. Things like:
-Computers
-Printers
-Copiers
-Scanners
-Desks
-Filing Cabinets
-Buildings
-Automobiles/Heavy Machinery/Equipment
-Land
You’ll also notice that Fixed Assets are below Current Assets because, although they could be “liquid”, that is you can sell them and get cash, you probably couldn’t do it fast (and get a lot of money for them). So, because they aren’t easily liquidated, they are below Current Assets on the Balance Sheet.
The big thing with Fixed Assets is their Usefulness. Computers, desks, automobiles, and even buildings are useful in our businesses. And, they can be used for a loooooong time. Which brings us to —drum roll please!— Depreciation!
