 In this presentation we will take a look at the financial statements focusing in on the balance sheet and on the liabilities to see how the short term and long term portion support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it of the loan or notes payable will be broken out. We've got our loan information on the left with the terms and the amortization table. We've got our trial balance. It's just going to be a quick trial balance to give us an idea of how it would look in terms of a trial balance and how we can convert that then to financial statements go into the financial statements we want to combine some accounts to put it into a plus and minus format. Our focus here is on these areas the liability section. So if we take a look at the balance sheet in other words the balance sheet is everything so that's just a quick trial balance that we're going to convert from a plus and minus system to from a debit credit system to a plus and minus system here are the debits and credits over here debits minus the credits equals zero. We can see that we have our two assets that's all we have one million two fifty four eighty four. That's our total assets. Here's our total assets and then we're focusing here on our liabilities. There's only two accounts so that's one hundred twelve six fifty five. That'll be our liabilities and then this is all of our equity. So remember the whole income statement is part of equity. That adds up to one million one forty one four twenty nine and that's what's going to be an equity. So these two numbers should match out if we get these two numbers right now the only problem here is that we need to break out between short term and long term. This is kind of a pain when it comes to loans especially installment loans that have monthly payments that are partially interest and partially principal. Why because we have to break out the interest in principle we have to break out the short term portion. So that means that we can't just pull the loan amount here into the into the financial statements because part of its short term or current and part of its long term in other words to properly do the financial statements we got to break out the short term portion of of the loan. So there's a few different ways that we could do that. We could in this format we're just going to say that we're going to have one account on the trial balance and then we'll fix it when we get to the financial statements rather than having two accounts on the trial balance. So before I get any more depth into that let's just take a look at the financials remember it's an order liabilities are going to be an order of current liabilities and long term liabilities. The current liabilities all the current liability means is that it's due within a year it's an arbitrary number so within a year the current liabilities are due. So if we have a loan that's going to be longer than a year but we make monthly payments then we're going to pay part of the principal within the year and part outside the year. So that's what we need to break out we need to say okay this number represents the total loan but has the current and long term portion in it and we need to say okay how much of it is due in the current year and how much of it is long term. So I'm going to go back to our our trial balance and see how we can break that out. Now there's a couple ways we can do this this is where software this is where you almost have to like fix it a little bit and do the adjusting entries or do some kind of adjustments at the end of the month or make the financial statements because a lot of times the software has trouble to make this kind of distinction. Why? Because if we look at the trial balance accounts it may make sense for us to just put the full loan in one account. That might be the easiest thing to do that's what we'll do here. There's a couple different options we could have to do this because if we put all the loan in one account it'll tie out to the amortization table here's the amortization table the loan started at a hundred thousand we made three payments we properly allocated between interest and principal so here's the two thousand one ninety five that's expense here's the principal amount at the end of the time period so we're saying that that's proper right now this is where we are as of the date of the financial statements and that's what ties out to the trial balance. Now if we try to say we could try to break out the short-term portion on the trial balance but that becomes more difficult to manage because it won't you know we have to look at two accounts then every time we want to tie it out to the amortization table it might be easier in other words to just have one account because that's easier to tie out to the amortization table and then when we create the financial statements we're going to have to break that one number out. The other reason that's useful is because every time a new payment is made the short-term portion will differ because there's a difference between the principal and the interest portion so if we break out between short-term and long-term by having two separate accounts on the trial balance those two accounts will never be correct until we make adjustments at the end of the time period it would be part of our adjusting entry process so first we're going to start off here we're going to say we just have one account and that's going to tie out to our loan amount but then when we make the financial statements we can't just pull this one number to the financials because we got to break it out between short-term and long-term we'll do that with a worksheet kind of like a subsidiary ledger subsidiary account that'll give us detail so to do that here is our amortization table we've got our payments we've got we've got our principal at the beginning all of our payments are the same interest changes of course as does the principal portion so here's where we are now that's what total should be at the end and we got to break out short-term and long-term the thing that's confusing about this is is note that we're not going to break out the short-term in terms of the amount of payments that are due in other words within a year that's 12 that's 12 months and these are monthly payments so you would you would think it would be well here's 1 2 3 4 5 6 7 8 9 10 11 12 or 30 38,160 that we're going to pay in the next 12 months wouldn't that be current because that's what we're actually paying in the next 12 months so I would think that would be but it's not why because part of this is interest and the interest you can include that not because we're not going to pay it in the next 12 months but because it's not really something that's been incurred yet because interest has to do with us earning renting the money so this interest these interest amounts here that are part of that payment haven't happened yet we haven't incurred the interest yet because we haven't held on to the money and used it in order to help generate revenue so the interest portion we have to take out even though this is how much we're paying it's not a current liability because we don't really owe the interest yet if we paid the loan back right now in other words we would not owe this interest so even though we're probably going to pay it and not pay the loan back right now we're not going to include that in the current liability portion because we haven't incurred it yet what we will include is just the principal portion so we're only going to pick up the principal portion so if we're here right now then the principal portion is 12 months out it's going to be this plus this plus this plus this plus this plus this plus this plus this plus this plus this plus this plus this 12 so i'm just going to sum that up over here this is going to be our ending line here so if this is going to be where we're at now this is the ending point that we're at now this then is the ending point will be at at the end of 12 months meaning this is the long term portion this is after 12 months we'll still owe $61,573 and we'll still owe interest on top of that but we haven't incurred it yet. So and then the interest portion is the difference so we can do that a couple different ways it's going to be equals the sum of all these principles. So that's the 31 and obviously that's going to be the difference between the 92, 655 minus the 61, 573 that's the 31, 82. So if this is where we're at now we're going to break this out between the short term 31, 82 which is just the principle in the long term that's what's still left over after a year and that's where we will pull these two numbers from. So the 20,000 liabilities is from here and then the current portion we're breaking this number out is going to be equal to the current portion is what we broke out here and then the long term portion is going to be equal to the long term portion here. So hopefully that's you can see those we'll make that. So there's going to be our two amounts and of course if we add those two up and holding down control it adds up to 92, 655 and that's going to be the 92, 655 here.