GAAP Balance Sheet PDF

**Balance Sheet Categories:** **1. Assets** Current Assets Cash and Cash Equivalents: Typically includes bank balances, cash on hand, and other highly liquid investments. Calculation: None; just report the balances. Accounts Receivable: The money owed by customers. Calculation: May r...

**Balance Sheet Categories:** **1. Assets** Current Assets Cash and Cash Equivalents: Typically includes bank balances, cash on hand, and other highly liquid investments. Calculation: None; just report the balances. Accounts Receivable: The money owed by customers. Calculation: May require adjustments for Allowance for Doubtful Accounts (estimate of bad debts). Inventory: Goods available for sale. Calculation: Adjusted for obsolescence or expiration, recorded at the lower of cost or net realizable value. Non-Current Assets Property, Plant, and Equipment (PP&E): Tangible fixed assets like land, buildings, machinery. Calculation: Depreciation is subtracted from the historical cost to get the net value. Impairments may also be accounted for. Equity and Other Investments: Includes stocks, bonds, or other equity investments. Calculation: Value at cost or fair market value, depending on the type of investment. Interest or dividends may need to be accrued. **2. Liabilities** Current Liabilities Short-Term Debt: Loans and obligations due within the year. Calculation: Interest expense needs to be accrued if not yet paid. Accounts Payable: Amounts owed to vendors for goods/services received. Calculation: None; just the outstanding vendor balances. Accrued Liabilities: Expenses incurred but not yet paid (e.g., salaries, taxes). Calculation: These are estimated and should have supporting documentation for the accruals. Deferred Revenue: Revenue received but not yet earned, related to future obligations. Calculation: Based on contracts and schedules. Non-Current Liabilities Long-Term Debt: Loans due beyond one year. Calculation: Similar to short-term debt, interest accrual is needed, and the total balance needs to be reported. **3. Stockholders' Equity** Common Stock: The value of shares issued by the company, typically recorded at par value. Calculation: Common stock is reported based on par value times the number of shares issued. Additional Paid-In Capital: Amount paid by investors above par value for stock. Calculation: The excess paid above par value of the stock. Retained Earnings: Cumulative net income that is retained in the company, not paid out as dividends. Calculation: Retained earnings = Beginning Retained Earnings + Net Income -- Dividends Paid. Summary of Calculations and their Role in the Balance Sheet: Allowance for Doubtful Accounts (AR): Estimate bad debts based on historical data and aging of accounts receivable. Inventory Adjustments: Account for changes in inventory value based on cost or market value (conservatism principle). Depreciation (PP&E): Calculate accumulated depreciation based on the depreciation method used (e.g., straight-line, double-declining balance). Interest Accrual: For both short-term and long-term debt, interest that is owed but unpaid must be accrued. Deferred Revenue: Calculate the liability based on contracts that outline the obligation for future goods/services. Retained Earnings: Keep track of net income and dividends paid to calculate the updated balance for retained earnings. **Final Thoughts:** **These 11 items are not just mentioned for the Balance Sheet, but they are part of how the Balance Sheet is constructed. Proper calculations, like depreciation, allowance for doubtful accounts, and interest accrual, are necessary to ensure the accuracy of the figures presented.** **Calculation and formulas:** Here are the key formulas for the calculations mentioned in the Balance Sheet and their applications: **1. Allowance for Doubtful Accounts (Accounts Receivable)** Formula: *Allowance for Doubtful Accounts = Estimated Percentage of Uncollectible Receivables x Accounts Receivable Balance* Explanation: You estimate a percentage of accounts receivable that may be uncollectible. This is based on past experience or an aging of receivables. **2. Inventory Adjustments (Lower of Cost or Net Realizable Value)** Formula: *Inventory Value = min (Cost of Inventory, or Net Realizable Value)* Explanation: If the market value of inventory drops below the cost, inventory should be recorded at the lower value. **3. Depreciation (for Property, Plant, and Equipment)** **Straight-Line Depreciation:** ***Annual Depreciation Expense = [Cost of Asset -- Salvage Value]*** *Here's the process step-by-step:* *1. Calculate the cost of the asset: This is the amount you paid for the asset, including any additional costs (like installation, taxes, etc.).* *2. Subtract the salvage value: The salvage value is what you expect the asset to be worth at the end of its useful life (its residual value).* *Depreciable base= Cost of Asset -- Salvage Value* *3. Divide by the useful life: The useful life is the number of years you expect the asset to be in service.* ***Annual Depreciation Expense = [Cost of Asset -- Salvage Value]*** *For example, if an asset costs \$10,000, has a salvage value of \$1,000, and a useful life of 5 years, the calculation would be:* *Depreciable Base = 10,000 -- 1,000 = 9,000* *Annual Depreciation Expense = [9,000] =1,800* *5* *So, the depreciation expense would be \$1,800 per year for 5 years.* ** Double Declining Balance Depreciation:** Explanation: Depreciation spreads the cost of a fixed asset over its useful life. The straight-line method spreads it equally over time, while the double declining method accelerates depreciation. Double Declining Balance (DDB) Depreciation Method: 1\. Calculate the straight-line depreciation rate:  Then, double that rate:  2\. Apply the DDB rate to the book value at the beginning of the period: In the first year, the book value is the cost of the asset. In subsequent years, you apply the DDB rate to the remaining book value after depreciation from the previous year. Example Calculation: Asset Cost: \$10,000 Salvage Value: \$1,000 Useful Life: 5 years DDB Rate: 40% (double the straight-line rate of 20%) Year 1:  Book Value at End of Year 1: \$10,000 - \$4,000 = \$6,000 Year 2: Book Value at End of Year 2: \$6,000 - \$2,400 = \$3,600 Year 3:  Book Value at End of Year 3: \$3,600 - \$1,440 = \$2,160 Year 4: Book Value at End of Year 4: \$2,160 - \$864 = \$1,296 Year 5: In the final year, you would calculate depreciation to bring the book value down to the salvage value of \$1,000. So, you adjust the depreciation in the last year to account for this.  Summary of Depreciation Expenses: Year 1: \$4,000 Year 2: \$2,400 Year 3: \$1,440 Year 4: \$864 Year 5: \$296 (to adjust to salvage value) The key difference between straight-line and double declining balance depreciation is that DDB accelerates depreciation in the earlier years, which can result in higher depreciation expenses early on. 4\. Interest Accrual for Debt (Short-term or Long-term Debt) Formula: *Interest Accrued = Principal x Interest Rate x [Time Period]* *360* Explanation: You calculate the interest on the outstanding debt for the period it has accrued. Time period is often given as the number of days, and 360 is used as a standard year in interest calculations. 5\. Deferred Revenue Formula: *Deferred Revenue = ∑ ( Advanced Payments Received -- Revenue Earned from Deliveries)* Explanation: Deferred revenue is the portion of the cash that has been received but not yet earned. You must recognize the revenue when the goods/services are delivered. If calculating the current period's deferred revenue: *New Deferred Revenue = Previous Deferred Revenue + Advance Payments Received -- Revenue Earned from Deliveries* 6\. Retained Earnings Formula: Retained Earnings = Beginning Retained Earnings + Net Income -- Dividends Paid Explanation: Retained earnings accumulate over time based on the company's net income and any dividends distributed to shareholders. 7\. Common Stock (Issued Shares × Par Value) Formula: *Common Stock = Number of Shares Issued x Par Value per Share* Explanation: Common stock is calculated based on the number of shares issued by the company and the par value of each share. 8\. Additional Paid-In Capital (Excess over Par Value) Formula: *Additional Paid-In Capital = (Price Paid per Share -- Par Value per Share) x Number of Shares Issued* Explanation: Additional paid-in capital is the amount shareholders pay over the par value of the stock. 9\. Total Assets Formula: *Total Assets = Total Current Assets + Total Non-Current Assets* Explanation: Total assets is the sum of all current and non-current assets. 10\. Total Liabilities Formula: *Total Liabilities = Total Current Liabilities + Total Non-Current Liabilities* Explanation: Total liabilities are the sum of all current and long-term obligations of the company. 11\. Stockholders' Equity Formula: *Stockholders' Equity = Total Assets -- Total Liabilities* Explanation: Equity represents the owner's claim on the company's assets after liabilities have been deducted. Summary of Key Points: Allowance for Doubtful Accounts: Estimate the uncollectible amount. Inventory Adjustments: Apply the lower of cost or market rule. Depreciation: Allocate asset costs over time (straight-line or accelerated). Interest Accrual: Accrue interest based on the debt's principal and interest rate. Deferred Revenue: Record payments received for future obligations. Retained Earnings: Track the net income accumulation over time. Stock Issuance: Calculate the value of common stock and paid-in capital. Liabilities and Equity: Calculate based on the balance sheet equation. **Due to complexities of these process, managers or Head Accountants handle this.** Yes, the formulas and calculations mentioned here are typically done after completing monthly reconciliations, but they often involve ongoing monitoring and adjustments throughout the accounting period. Here's a breakdown of when and why these calculations are done, and why managers may handle them: 1\. Allowance for Doubtful Accounts (Accounts Receivable) When: This calculation is often done monthly or quarterly, depending on the company's policy and the volume of receivables. Why Managers Handle: Estimating bad debts requires a judgment call based on historical trends and a deeper understanding of customer credit risk. Managers typically handle this due to their experience in making these judgments. 2\. Inventory Adjustments (Lower of Cost or Net Realizable Value) When: This is usually calculated monthly or quarterly as part of inventory valuation adjustments. Why Managers Handle: Managers are often responsible for reviewing inventory levels and market trends. They make decisions on whether inventory needs to be written down based on their knowledge of the business and the market conditions. 3\. Depreciation When: Depreciation is calculated monthly, but entries are often adjusted or reviewed during the month-end closing process. Why Managers Handle: Depreciation methods (e.g., straight-line vs. accelerated) can impact the financial statements, and managers need to ensure the appropriate method is applied and changes are disclosed. 4\. Interest Accrual for Debt When: Interest is typically accrued monthly, especially for long-term loans or credit lines. Why Managers Handle: Managers ensure that interest is calculated correctly based on the loan terms and ensure the accrual reflects the true cost of borrowing. 5\. Deferred Revenue When: Deferred revenue adjustments are often made at the end of the month or after receiving payments for long-term contracts. Why Managers Handle: Managers must ensure that revenue is recognized when earned (not when received), which involves understanding the nature of the contracts and the timing of service delivery. 6\. Retained Earnings When: Retained earnings are adjusted after the monthly closing process and the calculation of net income. Why Managers Handle: While this is more of a summary calculation, managers are involved in ensuring that the earnings and dividends are correctly accounted for. 7\. Stock Issuance and Additional Paid-In Capital When: These are typically adjusted when new stock is issued, which might happen quarterly or annually rather than monthly. Why Managers Handle: Adjusting stock issuance and paid-in capital requires accurate documentation of stock transactions, which is typically handled by senior accounting personnel. 8\. Liabilities and Equity Calculations When: These are typically done at month-end or quarter-end to ensure the balance sheet is accurate. Why Managers Handle: Managers ensure that liabilities are properly classified (current vs. non-current) and that equity is correctly stated, especially when changes occur. Why Managers Do These Calculations: Complexity: These calculations require judgment (e.g., estimating bad debt, choosing depreciation methods, or determining when revenue is earned). Impact: They have a significant impact on the financial statements, and managers need to ensure accuracy and compliance with accounting standards (e.g., GAAP). Knowledge and Experience: Managers have a better understanding of business operations, transactions, and the potential risks or adjustments required to ensure proper reporting. Disclosure: Some of these adjustments require disclosures in the financial statements (e.g., changes in depreciation methods or bad debt estimates), which managers typically handle to ensure the company is in compliance. In Summary: While bank and credit card reconciliations involve matching transactions to accounts, the more complex calculations around allowances, depreciation, accruals, and deferred revenue typically come at the end of the period (monthly or quarterly) and involve judgment calls and knowledge that managers handle. They are responsible for making sure these calculations are done properly, ensuring that the financial statements reflect the business's true financial position. As a bookkeeper, you are responsible for the foundation (reconciliation, recording transactions), but these more complex adjustments often fall under the manager's responsibilities. **Balance Sheet Breakdown and Key Principles** **1. Cash and Cash Equivalents** Key Principle: Reliability and Full Disclosure Action: Verify the balance through bank statements. Full Disclosure: Disclose any restricted cash. **2. Accounts Receivable (AR)** Key Principle: Reliability, Accrual, Full Disclosure, and Conservatism Action: Confirm balances with customers; estimate doubtful accounts. Full Disclosure: Disclose large customer concentrations and at-risk accounts. **3. Inventory** Key Principle: Reliability, Historical Cost, Full Disclosure, and Conservatism Action: Verify via independent count, record at lower of cost or market value, and disclose inventory risks (e.g., expiration, obsolescence). **4. Property, Plant, and Equipment (PP&E)** Key Principle: Reliability, Historical Cost, Full Disclosure, and Conservatism Action: Verify via documentation (e.g., deeds, invoices) and record at historical cost. Write off impaired or obsolete equipment. Full Disclosure: Disclose depreciation method and impairments. **5. Equity and Other Investments** Key Principle: Reliability, Accrual, Full Disclosure Action: Verify balances with custodian statements and accrue interest/dividends not yet received. Full Disclosure: Disclose investment policy. **6. Short-Term Debt** Key Principle: Reliability, Accrual, Full Disclosure Action: Confirm with lender, accrue interest payable, and disclose loan terms and conditions. **7. Accounts Payable (AP)** Key Principle: Reliability, Accrual, Full Disclosure Action: Verify with vendor invoices and accrue liabilities when goods/services are received. Full Disclosure: Disclose significant vendor concentrations. **8. Accrued Liabilities** Key Principle: Reliability, Accrual, Full Disclosure Action: Support with documentation and accrue estimated liabilities (e.g., claims, litigation). Full Disclosure: Disclose probable claims or significant litigation. **9. Deferred Revenue** Key Principle: Reliability, Accrual, Full Disclosure Action: Support with contracts and schedules, accrue when obligations are met. Full Disclosure: Disclose significant contracts contributing to deferred revenue. **10. Long-Term Debt** Key Principle: Reliability, Accrual, Full Disclosure Action: Verify balances with lender statements and accrue interest owed. Full Disclosure: Disclose loan terms and payment schedule. **11. Stockholders' Equity** Key Principle: Full Disclosure Action: Trace stock issuance, par value, and paid-in capital; disclose retained earnings. Full Disclosure: Provide details on stock issuance and retained earnings. In summary, as a bookkeeper, the key principles you need to apply are reliability (ensuring all information can be verified), accrual (recording revenue/expenses when earned/incurred), full disclosure (providing all relevant financial information to stakeholders), historical cost (recording assets at their original cost), and conservatism (accounting for potential losses or risks). **PERFORMANCE TASK USING BALANCE SHEET** **(The rest are written in my notes)** By following these steps, you'll be able to identify discrepancies in your GL and ensure your financial reports are accurate. **1. Compare Debits and Credits in the GL** Step 1: Start by reviewing the GL and confirming that all accounts have both debits and credits properly recorded. In accounting, debits should always equal credits. Step 2: Check for any individual transactions where the debit or credit might have been recorded incorrectly. This could be a potential source of discrepancy. **2. Verify Account Balances Against Financial Reports** Step 1: Look at your balance sheet and P&L reports. For example, check the cash, accounts receivable, accounts payable, and other major balances. Step 2: Go back to the GL and confirm the balances for these accounts. If the balance on the GL doesn't match the balance on the balance sheet, that could indicate an error in either the GL or the financial report. **3. Check for Missing or Duplicated Entries** Step 1: Carefully look for any missing entries that should be reflected in the reports but are absent in the GL. These could be unposted journal entries or overlooked transactions. Step 2: Check for any duplicated entries in the GL. This could happen due to manual errors or automated processes that post the same entry more than once. **4. Reconcile Bank and Credit Card Statements** Step 1: If you're working with cash accounts, compare the bank reconciliation with your GL. Ensure that any transactions in your bank statement are recorded in the GL, and the cash balance matches. Step 2: Look for outstanding checks, deposits in transit, or other timing differences. Ensure these have been properly accounted for. **5. Review Adjustments for Depreciation and Accruals** Step 1: Look for depreciation entries and accruals in the GL. These should be recorded regularly (monthly or quarterly) based on the appropriate schedules. Step 2: Verify that the depreciation and accrual amounts match those recorded in your financial statements (like P&L and balance sheet). Errors in these adjustments can result in discrepancies. **6. Check the Trial Balance Format (if Available)** If you have access to a trial balance, compare the total debits and total credits. They must match exactly. If they don't, there's an issue somewhere in the GL entries. Look for any out-of-balance accounts in the trial balance that may indicate a posting error, such as a missed journal entry or incorrect account assignment. **7. Reconcile Subsidiary Ledgers** Step 1: For accounts like accounts receivable or accounts payable, ensure that the subsidiary ledgers match the corresponding GL balances. The sum of individual customer or vendor balances should match the total balance in the GL. Step 2: Any discrepancies between the subsidiary ledgers and the GL should be investigated, as they may indicate issues with invoicing or payments. **8. Look for Unusual or Out-of-Place Transactions** Step 1: Review entries that seem unusual or don't follow typical patterns. For example, large, one-time transactions or journal entries that don't align with typical month-end adjustments. Step 2: Investigate any transactions that don't seem to fit the expected flow of business operations, as these could point to errors or fraudulent activity. **9. Check for Timing Issues (Cut-off Errors)** Step 1: Ensure transactions are recorded in the correct accounting period. For example, check if revenues or expenses are properly recognized in the correct month or quarter. Step 2: Review the cut-off dates for entries to make sure there are no errors in timing that would affect the current period's reports. **10. Verify Posting of Journal Entries** Step 1: Make sure journal entries are posted properly in the GL, including any adjustments or corrections made during the period. Step 2: Cross-check the journal entry details with supporting documents (e.g., invoices, receipts, contracts) to confirm accuracy. **(The rest are written in my notes)** 1\. Review the Financial Reports: Start by thoroughly reviewing the balance sheet and other related financial statements (like the income statement and cash flow statement) from Sage. Look for all major accounts like assets, liabilities, and equity. Pay attention to line items like accounts receivable, accounts payable, inventory, and equity adjustments. 2\. Trace the Connections: As you mentioned, you can trace numbers back in Sage. Follow the links between these accounts and their supporting schedules. For example, examine how the allowance for doubtful accounts is linked to accounts receivable or how inventory adjustments impact the total inventory value. Understanding these connections helps you see how each figure affects the balance sheet. 3\. Practice Calculations: Try calculating the major balances that contribute to the balance sheet, like: Total Current Assets = Cash + Accounts Receivable + Inventory + Prepaid Expenses + Other Current Assets. Total Liabilities = Current Liabilities + Long-Term Liabilities. Owner's Equity = Assets - Liabilities. Review how changes in one area (such as an increase in accounts receivable or an inventory write-down) can impact the balance sheet. 4\. Look for Reconciliation Entries: Monthly reconciliations are essential. Look for the entries related to accruals, depreciation, and prepayments. For example, after a bank reconciliation, make sure the cash balance on the balance sheet matches the adjusted bank statement balance. 5\. Analyze Trial Balance: Use the trial balance to check for errors. This can be a good practice for spotting discrepancies in the balance sheet. Trial balances can also help ensure that debits equal credits, maintaining the balance. 6\. Review Reports with Historical Data: Try comparing current month numbers to prior months to understand trends. This will help you see how different transactions or adjustments influence the balance sheet over time. By working step-by-step through these reports, you'll start to grasp the dynamics of balancing a balance sheet and how the figures in Sage are connected. Just make sure you're not altering any numbers but rather exploring how they were derived and adjusted. The context: Whenever I look up US GAAP principles such as accruals and conservatism, I often find cold hard definitions that lack context. But how do these US GAAP principles relate to the accounts on the financial statements? For example, what does the principle of accrual mean for the balance of accounts receivable? And what does the principle of conservatism mean for the inventory account? Today I'm going to talk about US GAAP principles in a way that my college professor never taught me. So we\'ll talk about principles such as reliability, full disclosure, conservatism, historical costs. and the accrual principle. And so the reason why I say that my college professor never taught me this way is because, for example, one of the principles, reliability, the way that we learned in college is that the information on the financial statements needs to be reliable and verifiable. But what I\'m going to do today is that I want to map into the actual financial statement. So I\'m going to take reliability and map it into the balance sheet. So we\'ll jump into my computer here, and I\'ll show you, for example, line by line on the balance sheet how does it tie into the gaap principle that is most applicable. And so for reliability, the way it applies to the cash balance is that the information presented on the cash balance needs to be verifiable by a bank statement through an independent confirmation. And so this is the kind of thing we\'re doing today. We\'re mapping and adding context to each of these US GAAP principles so that we understand it a little better. So that\'s the topic of this video today. Stick around. : Alright, so we\'re looking at the balance sheet for a company called Crabcake Inc. And from the name of it, this is a company that makes crab cakes or crabby cakes or whatever they make. It doesn\'t matter. What matters is that this is the ending balance as of December 2020 and that the balances are in millions. And so if we look down here at the current assets section and current assets, obviously are assets that can be converted into cash within 12 months, right? That\'s why we call it current. And so for cash and cash equivalent, the ending balance is \$19 million. And the way I want to show you this is that looking at each of these gaap principles, and these are like some of the main gaap principles, reliability of information, accrual, historical cost, full disclosure, and conservatism. And so for cash and cash equivalent, the most applicable ones are going to be reliability and full disclosure principle. So for the reliability, the way that this relates to cash and cash equivalent is that the information must be verifiable. with bank statements via independent confirmation. And so the balances in this item here need to be verifiable. So if I wanna send out an independent confirmation to the bank and get a bank statement, I can tie it back into this balance. And the same thing goes for short-term investments. So short-term investments are things like money market accounts, certificate of deposits. Typically these are the short-term investment meaning can be converted into cash within 12 months. And that\'s why we can include it here. into current assets. And so for short-term investments, the same way for reliability, I need to be able to confirm this independently with a bank. And so this is the reliability US GAAP principle. As far as the full disclosure principle, full disclosure principle means that you disclose material information to the investors that is relevant to them in the decision-making process. And so think of yourself as the investor in the company. What information would you like to know about the company\'s cash and cash equivalents? as well as short-term investments. And so basically, one of the things that we talk about here, one of the examples is that you must disclose any restricted cash. So restricted cash is the cash balance that sits on the balance sheet. You have right to it as a company, but it\'s restricted for a reason, it\'s tied up for a reason. And so one of the examples is that if you enter into a lease agreement, the landlord sometimes would require you to have a letter of credit for a certain cash amount that sits in the bank that is restricted. in case you default on the payment for example, right? So this amount sits in the bank, you have rights to it, it\'s yours, but you can\'t really access it and get the money out of the bank. And so restricted cash will be disclosed here. under the full disclosure principle. By the way, any of the things that we talk about in this lecture can be asked of you in an accounting interview. And so if you have an accounting interview coming up, I highly recommend watching this video a couple of times and also look at my website for the night before the accounting interview PDF guide, which is really, really helpful. Okay. All right. The next item up on the current assets section here is account receivable and as you can see is presented as net balance right so this is net of allowance for doubtful accounts or net of the amount that you think is not going to be collectible in the future right so you always have to have an estimate of how much of AR is not going to be collectible and that\'s going to doubtful accounts and so the balance at your end is eight million dollars And the reliability gaap principle applies in a way that you should be able to verify this information with an independent third party or the customer. So if I\'m an auditor and I come into the company and I want to verify the information on the AR balance and the balance sheet, I need to be able to send the confirmation letter to the customer and have the customer verify back to me that this information is correct. So the reliability factor here is that your AR balance is supported by invoices that is acknowledged by customers. So if I ask the customers, hey do you owe this money ? Yes, they\'ll say, yes, we do owe this money. So this is how this information is reliable here. So the next item up is going to be accrual. And the accrual principle here says that, you know, GAAP doesn\'t support cash accounting, right? So most companies, when they start out, they use cash accounting. And then\... as they get bigger and have investors, they start using accrual accounting. And I\'ll leave a link up here to my video on the difference between cash accounting and accrual accounting. But basically, with accounts receivable, we are here saying that when we make a sale, the sale that you make is recorded against accounts receivable versus waiting for the cash to come in to record the sale. So under cash accounting, you wait for the cash to come in. Under accrual accounting and the accrual principle here, you record your sales against accounts receivable. The next item I\'m going to be Full Disclosure and so some of the things that you want to disclose in relation to accounts receivable is going to be any concentration of accounts receivable with one customer and so as an investor as you can imagine you\'d want to know this kind of information right you\'d want to know if there\'s a big concentration there\'s one large customer that owes 20% of the entire accounts receivable balance because the risk is that if that customer goes out of business. for whatever reason you can collect the cash, this is a big risk, right? So think of the things that you would want to know as an investor, and these are the things that you most likely would need to disclose. And by the way, this template here in its entirety\... uh\... and in terms of balance sheet and also in the income statement sites when explanation on the gaap principles for the income statement this template here can be downloaded on my website uh\... so go ahead and check it out and i\'ll leave a link down below the second item here to one of those clothes is any amounts that are at risk of write-off so if you know of some of the accounts of some of the invoices that are outstanding that have a good probability of likelihood of being written off uh\... these are some of the things that you want to disclose as most of your financial statements. The next principle here is conservatism, What I mean here is the conservatism of showing accurately the balances in your balance sheet and accounting for anything that can go wrong. And so with accounts receivable, you need to accrue or you must accrue for allowance for doubtful accounts, like we said, which is what you estimate as the AR balance that\'s not going to be collectible in the future. And that\'s the principle of conservatism here. The next account on the balance sheet is going to be Inventories. And so with inventories, the balance here is \$2 million. And the reliability here is that I need to be able to verify via independent count. And so if I come to you and I say you\'re showing a balance of \$2 million of inventory, I need to be able to go to your warehouses and verify it, right? So the information must be verifiable via independent count if needs be, by a third party, be it an auditor, a lender, or whatever the case is. And so that\'s the reliability for inventory. The next principle here is historical cost. And this principle states that you record items on a balance sheet, certain items at a historical cost. For inventory, obviously we\'ll talk about it here in a second, it\'s recorded at the lower of cost or naturalizable value, but for inventory you need to keep records of the historical cost. And this is easy, right? If you have invoices from vendors, you\'re keeping these vendors or these invoices on file so that if you want to go back to it, you can verify the historical cost of this inventory, right? And so the historical cost principle states that you keep record of all historical costs. The full disclosure principle here says that you need to disclose any material information regarding inventory. And so some of the things that I can think of is near expiration or obsolescence disclosure. So if you have some inventory that is getting close to be expired or obsolete. Basically, you need to be disclosing this kind of information because investors would want to know, right? The second item here is disclosing changes to valuation method. And with the full disclosure principle in general, you need to be disclosing any kind of accounting change or accounting principle that you are following. So if you\'re changing the valuation method for your inventory\... This is something that you have to disclose as footnotes to your financial statements. And in the principle of conservatism, the way that applies to inventory is that you record inventory at the lower of cost or net realizable value. That means is that when you buy inventory, you recorded the cost, whatever you bought it at from the vendor, but then as time goes by, if the value goes down dramatically, and for example, if you buy it at \$100 per item, and then suddenly you can only sell it for 50, and so you need to be recording it at the lower of cost or net realizable value, right? So this is the principle of conservatism as it applies to inventory. All right, so now we\'re done with the current asset section and we\'re gonna drop into the non-current assets. And the first item that we got here is property, plant and equipment. And so the balance sheet is shown as net, and the net here is net of accumulated depreciation, and the balance here sits at \$18 million. And so the reliability gaap principle here says that this information, I should be able to verify this information via deeds, records, or count. And so if the listing that makes up the \$18 million is, for example, a listed equipment on the factory floor, I should be able to ask for a listing. And if I want to, as a third party, I can go out and observe or count the actual equipment, sits on the factory floor. And so this is the reliability of information. The next principle here is historical cost, is that obviously we record the fixed asset at cost, and we need to keep record of these historical costs through vendor invoices and documentation, things like that. The full disclosure principle here is that disclose any changes to the depreciation method. So if we change the method from straight line depreciation to any other method, for example, we need to disclose this. And we said this before, any change to accounting method needs to be disclosed as the footnote of the financial statements. The principle of conservatism, as like we said before, is simply is accounting for anything that can go wrong. And so if we have any impaired equipment or obsolete equipment, we need to write off this equipment from the balance. And so that\'s the principle of conservatism here. All right. The next item up on the long current asset is going to be Equity and Other investments. And equity under investments, this is what the company invests in the extra cash. So if the company has extra cash from operation, doesn\'t know what to do with the cash, you go out and invest it in equities, for example. So in this case, the company has some equities or stocks that they own. And so the way that this should be tied into that principle is that reliability, this information must be verifiable. And the way to verify it is to get custodian statements. For example equities, I need to be able to reach out to the custodian, for example, if it\'s Morgan Stanley or whoever it is, and ask for the statements to tie back into these balances, and that\'s how I\'m able to verify it. The accrual principle here, an example, is accrue any interest or dividend issue but not yet received. And so if any of your investment is issuing you an interest or dividend as a return on your investment, and you haven\'t yet received the actual cash, but it\'s actually earned during the month, you need to be able to record that as a receivable. So that\'s the principle of accrual here. The next principle is going to be full disclosure and one of the things the company would have to disclose is its investment policy. And so usually the investment policy will say how much risk is the company willing to take with its excess cash, right? So early on when a company is smaller, they\'re only investing their money in money market funds and certificate of deposits and things that are guaranteed in nature. But then as the company matures, it\'s able to go out and create an investment policy that\'s more risky. Take maybe invest in venture capital, equities and things like that. And so this is the investment policy that the company must disclose. All right, jumping over to the liability section. looking at the current liabilities. And so the first item up is gonna be short term debt. And the way that this information should be reliable is that this can be verified via lender statements. So I should be able to send out a confirmation to the lender and confirm the balance that is being owed here. The principle of accrual, you need to be accruing any interest that is owed, but not yet paid. And so if you owe interest on the loan and you haven\'t paid it yet, period end, you need to be accruing this interest expense from your books and records, right? principle of accrual. Full disclosure principle, disclosed terms of payments, duration of the loan, etc. Any things that is relevant information for the investors to know. The next item up is going to be accounts payable. And with accounts payable, the reliability I must be able or if I want to\... I can tie this balance back to the vendor invoices. And so this is the supporting information for accounts payable. For accrual, obviously the cash hasn\'t been paid and so this is a liability that is recorded even though the cash is gonna be paid in the future, which is the whole principle of accrual, right? This is the difference between accrual and cash-based accounting. Cash-based accounting will say you record the expense only when the cash goes out, but with accounts payable, we are accruing for the cash that hasn\'t been yet spent is gonna go out in the future, principle is recording this item as accounts payable. The full disclosure print principle, you know the same way we talked about accounts receivable, but accounts payable, you should also be disclosing any large vendor concentrations. So if you have, for example, a vendor that makes up 20% of your accounts payable, you should disclose that in the footnotes. The reason being is that investors would want to know if there\'s a risk, if you have one supplier that you rely on heavily, if that supplier goes out of business, this is a risk to the business, right? And so disclosing any concentration of accounts payable is something that you should be doing. The next item is accrued liabilities And these are all the liabilities that we think are probable and we can estimate the amounts and so we would accrue with them. So here the amount is \$26 million. The reliability is that we must be able to support it by evidence. And so if I ask you what is this balance made out of, \$26 million. You should be able to support it with documentation or emails or things that can support that these liabilities are probable and that you can estimate the value so you can be able to record it here. The accrual principle, obviously from the name, this is accrued liability, so you\'re recording costs that are probable and the cost can be estimated. Full disclosure, you must disclose probable claims and litigation that are likely to materialize in significant cash amounts for the business. Next item is deferred revenue and this is the revenue that is recorded here as a liability because basically this most likely relates to cash that you receive but you haven\'t yet delivered the good or the services and so now this is a liability even though you have the cash but you know that you have an obligation to deliver this goods or service in the future therefore it\'s a liability right so with deferred or deferred revenue the reliability here is that you need to be able to support it with the calculation and contracts and schedules accrual Obviously, you accrue revenue when earned, not when invoiced or not when paid. So this is the accrual basis for revenue, which basically here says that you record deferred revenue when you have an obligation to deliver in the future. Full disclosure, you must disclose any significant contracts that contribute to the balance here. So if you have a big chunk of money here sitting in deferred revenue, you need to be able to disclose which contracts this relates to. Now we go to non-current liabilities and we have long-term debt and these are the longer-term loans that the business owes. The balance is 49 million. Basically, I need to be able to verify this information with a lender statement if I want to, right? So this is how this information is reliable. Accrual, accrue any interest owed but not yet paid. Full disclosure, disclose any terms of payments, duration of the loans, ETC, schedule of loans, basically anything that is relevant for the investors to know, you should be disclosing here. Right, now that we looked at assets and liabilities, we\'ll look at the stockholders\' equity. And this here is made up of common stock of \$1,000 or actually a million dollars rather because these balances are millions. Usually this is based on the par value of the stock. Additional paid in capital which is the extra excess funds paid in addition to the common stock value or the par value of the company stock. And this should be, you know, if I want to, I can trace it back to investments made in the company. Retained earnings, this is an accumulation of net income and follows pretty much the same principles discussed in the income statement tab, which is another video that I made. I\'m going to leave a link to it in the description below. But basically, return earnings accumulation of the net income of the business. And that\'s it.