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Basic Financial Statements

 Self-Paced Overview

The Balance Sheet

The Balance Sheet – Valuing Balance Sheet Items

Items on the assets side of the balance sheet are generally valued at cost. There are two exceptions—marketable securities and inventories. The rule that applies to marketable securities and inventories is lower of cost or market. That means that current market value or original cost, whichever is lower, is the appropriate value for marketable securities and inventories. For instance, if a share of stock was originally purchased for $80 three years ago and its value has fallen to $60, the value that would appear on the balance sheet is $60.

One note that should be made is in reference to accumulated depreciation. The accumulated depreciation account is what is called a contra-assetContra-asset:An asset item which would in essence carry a minus sign. account. That means that even though accumulated depreciation is reflected on the assets portion of the balance sheet, it in essence carries a minus sign. Therefore, if Gross Fixed Assets are $1,000,000 and Accumulated Depreciation is $200,000, Net Fixed Assets would be $800,000.

Balance Sheet
Products, Inc.

 
January 1, 2017

Assets
Current Assets
Cash $123,000  
Marketable Securities $200,000  
Accounts Receivable $345,000  
Inventories $100,000  
Total Current Assets   $768,000
 
Long-Term Assets
Building (Gross) $350,000  
−Accumulated Depreciation $–50,000  
Net Building $300,000  
Land $325,000  
Total Long-Term Assets   $625,000
Total Assets   $1,393,000
Claims on Assets
Current Liabilities
Accounts Payable $100,000  
Notes Payable $150,000  
Total Current Liabilities $250,000  
Long-Term Notes $300,000  
Total Liabilities   $550,000
 
Owners' Equity   $843,000
Total Claims   $1,393,000

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