Analyze Investments

The balance sheet is sometimes reduced to a simple
accounting equation: assets = liabilities + owner equity (see
box on p. 2). Ultimately, all transactions appear within this
basic equation.
The balance sheet assigns values to equipment and
other assets, describes amounts owed on both short- and
long-term horizons, lists funds available for continued
operation of the business, and determines the value of the
stockholders’ equity.
Keep in mind that balance sheets can become obsolete
very quickly. Like your monthly bank statement, they reflect
conditions on the compilation date.
The major categories of assets are: current assets (items
that turn over in a short period of time, such as cash, marketable
securities, accounts receivable and inventories);
fixed assets (buildings, land, mineral resources, heavy
machinery, vehicles, etc., all of which are used over the long
haul); and other assets (deposits and intangibles like copyrights
and patents).
Major liabilities include: current liabilities (obligations to
distributors, tax authorities, employees and lenders due within
one year); long-term liabilities (an assortment of debt instruments
like mortgages and bonds); and owners’ equity (funds
contributed by various classes of owners of
the business as well as accumulated earnings
Income Statement
retained in the business).
Revenues - Expense = Profits
2. Income Statement
The income statement describes the
dollar value of goods and services sold,
gross profit, funds expended to make
profits happen, including writeoffs and
taxes, and how much net profit or loss
resulted. The income statement is sometimes
referred to as the operating statement,
earnings statement or profit-andloss
statement.
Sales $4,000
Costs and expenses 2,400
Writeoffs 100
Depreciation 100
Earnings before interest
and taxes $1,400
Interest expense 25
Earnings before taxes 1,375
Taxes 475
Net Income $900
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