Constructing a Balance Sheet

Case Study

 

A new business starts up as a limited company called Sunrise Ltd by raising $10,000 from the owners i.e. share holders. The money is put into a new bank account. What would the assets, liabilities and equity be?

 

Assets: Bank Balance      10,000 Equity & Liabilities: Share Capital      10,000

They then use 6,000 of its bank account to buy a delivery van. Assets and liabilities after this transaction:

Assets: Bank Balance      4,000Delivery Van        6,000 Equity & Liabilities: Share Capital      10,000

Sunrise Ltd then buys some inventory at 3,000 on credit. Assets and liabilities after this transaction:

Assets: Bank Balance       4,000Delivery Van         6,000Inventory              3,000 Liabilities: Accounts Payable 3,000 (to be paid to creditors) Equity: Share Capital      10,000

Total assets must always equal total liabilities (and equity). It is inevitable as the liabilities (and equity) are providing the funds that we are spending on these assets.

Shortly afterwards, after selling 1,000 of inventory for 2,500, payment of 2,600 of the accounts payable and the purchase of 2,200 of machinery financed by a 2,200 bank loan, the assets and liabilities change to the following:

 

Sunrise Ltd. Balance Sheet As of December 31, 2009----------------------------------- Assets ----------------------------------- Fixed Assets Delivery Van            6,000 Machinery               2,200 Total fixed assets  8,200 Current Assets Bank Balance         1,400 Inventory                 2,000 Accounts Receivable 2,500----------------------------------- Total current assets 5,900 Total assets          14,100 ----------------------------------- Liabilities and Equity ----------------------------------- Current Liability Accounts Payable      400 Long-Term Liabilities Loans Repayable    2,200 Total Liabilities       2,600 ----------------------------------- NET ASSETS         11,500 ----------------------------------- Shareholders' Equity Share Capital        10,000 Retained profits       1,500--------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 11,500

Points to note:

· Must be headed with the name of the reporting entity (e.g. Sunrise Ltd) and the date.

· The van has not been depreciated and there are no other trading expenses

· The terms 'Current Liability' and 'Long-Term Liability' are the traditional names possibly used by sole traders or partnerships. Limited companies may use the phrases 'Liabilities: Amounts falling due within 1 year' and 'Liabilities: Amounts falling due after 1 year'.

· The Total Equity may also be called the 'Net Worth'.

· The Net Worth is in principle what the company is worth, it shows the monetary amount that would effectively be left, if all assets were sold and all liabilities paid off.

 

(Retrieved from "http://en.wikipedia.org/wiki/Balance_sheet")

13. Translate the expressions limited company, on credit.

14. Write out and learn the terms used in the usual balance sheet.

15. Translate the balance sheet presented in the text.

16. Find examples of the income statement, the cash flow statement, the statement of retained earnings and translate them into Russian.

 

 

UNIT 4

MONEY

Text 1.

FOLLOW THE MONEY!

Pat Regnier

A 12-nation currency switchover creates a continent of 300 million tourists.

In Europe, old fears about Y2K returned as 2K2 loomed. Jan. 1 was the date for the 12-nation switch to one currency, and in the hours leading up to it, there were nightmare scenarios about riots and self-destructing cash machines as lire, francs, guilders, pesetas and deutsche marks were converted into euros.

When the time came, the banking network was indeed stretched thin. Banksys, the group that operates Belgium’s ATMs, recorded about 600 cash withdrawals a minute in the first two hours of the new year. Some 200 Dutch post offices kept there doors closed on the morning of Jan. 2 – the first business day of the euro era – because the postal bank, which handles the largest number of small bank accounts in the Netherlands, was not ready for the transition. In France, many motorways backed up as drivers eager to break franks into euro change skipped the credit-card and electronic E-Z lanes and jammed tollbooths. Meanwhile, some shopkeepers resisted government urgings to get old currencies out of the system by giving euros as change. “I am not a bank,” griped a vegetable seller at the Place d’Aligre market in Paris.

The fears, however, were overblown. For the most part, Europeans greeted the launch with good humor and even civic-mindedness. The debut of more than 10 billion new bank notes, legal tender from Lisbon to Helsinki and from Dublin to Athens, has given 300 million Europeans their first true experience of union. (Britain, the most significant hold-out, is keeping the pound for now.) An Austrian who stood in a long bank queue to get her first walletful of euros could go home and see Spaniards doing the same thing on TV. The much photographed lines outside some banks were strictly voluntary displays of euro enthusiasm, since in most countries the old currencies are still good through February.

Accepting the new money is one thing. Getting used to it will take a little longer. For the next few weeks, Europeans will live like tourists in their own countries, pondering price tags and trying to decide if that new sweater or pack of beer is a bargain or a rip-off. Most Italians will no longer be millionaires, and the French will have to cope with the fiddly exchange rate of 6.6 francs to?1. (“It’s easy,” says another Paris greengrocer, displaying his mathematical prowess: “You just divide by 50% and add that to the original, then times by 10…”)

Well, the good news is big banks like Société Générale have passed out free calculators. Even the Germans, who merely had to chop the old deutschemark price in half, seem perplexed. Almost 50% of Germans polled thought a new Volkswagen Polo priced at 26,000 deutsche marks was expensive, but only one-third said the same of the car priced at the equivalent?13,000. (If you must know,?1=89¢ American.)

In the long run, the greater transparency of euro pricing should work to consumers’ benefit. Well-traveled Europeans instinctively know prices are cheaper in some countries than in others, and now it will be much more obvious. “Manufacturers and multinational corporations will have to explain the difference,” says Carmel Foley, Ireland’s director of consumer affairs. “That sort of scrutiny will exert downward price pressure.”

However, a single currency will also make Europe’s economies more difficult to manage. The European Central Bank in Frankfurt must set a single interest rate for rural and still developing countries like Portugal as well as advanced ones like Germany. Unlike governments in other vast currency areas – in particular, the U.S. – the European Union doesn’t yet have the power to adjust for regional imbalances with federal taxes and spending.

Still, in a place like Kosovo, the euro has given the war-weary populace a larger sense of belonging. On the euro’s third day, residents of the capital, Pristina, braved subzero temperatures to get the bills. By day’s end, a small grocery on the city’s main street had?4.50 in its till, though prices were shown in German marks, the official currency since 1999. Kosovars are used to a variety of currencies: US dollars, Swiss franks, Yugoslav dinars. Now there’s the euro. Says shopkeeper Shukrane Shaqiri, warming her hands by a stove: “It’s the same for us, as long as it’s money.”

-Reported by Bruce Crumley and Delphine Schrank/Paris,