 Hello and welcome to the session in which we will learn how to prepare a balance sheet. The balance sheet is important because it's covered in your financial accounting course, intermediate accounting course and definitely on the CPA exam. Matter of fact, the CPA exam, the FAR section, is simply the balance sheet. Why? If you really think about it, what do you learn in the FAR section? You would learn cash, you would learn account receivable, you would learn inventory, property, plant and equipment, investments, liabilities, current, long-term, and the equity accounts. And those are the balance sheet accounts. So in this session, you would learn about that big picture and learning about the balance sheet is important because when you journalize an entry, you need to understand mentally, imagine where does it fit on the financial statement, whether it's a balance sheet account or an income statement account. So that's very important. So whether you are an accounting student or a CPA candidate, this session will benefit you tremendously, especially if you are a CPA candidate. Most likely you have a CPA exam course. Great. That's fine. Keep it. You need that CPA review course. What I do, farnhatlectures.com can help you in addition to your CPA review course. It's a useful addition. You keep your courses, it's a useful addition. My courses are built to parallel your CPA review course. So built exactly to help you with that CPA review course. I can help you understand the material better, which in turn add 10 to 15 points because you could use your CPA review course much more efficiently. Your risk with me is one month of subscription. You take the subscription, if you see it makes a difference, you keep it. If not, you cancel, you lost one month. That's fine, but your gain is passing the exam. If not, for anything, take a look at my website to find out how well or not well your university is doing on the CPA exam. And this is a list of all other courses that I have that I cover. If you haven't connected with me on LinkedIn, please do so. Like this recording, share it with other, connect with me on Instagram, Facebook, Twitter, and please connect with me on Reddit. So this is a trial balance. And simply put, this is a simple trial balance. This trial balance is organized normally. It means assets are first, then liabilities, then equities, which is good. Otherwise, I could give you this trial balance where the accounts are all over the place and you have to sort out what account is which. I can also give you a trial balance where I have revenues and expenses, even confuse you more and ask you to prepare a balance sheet. So this could be a little bit more involved. The key here is just to kind of make sure you are comfortable with what is a balance sheet is. And this is for Adam Company for December 31st, 2023. So the first thing you need to know about the balance sheet, it has three headings, the name of the company, the name of the financial statement and the date. Very important to understand the date on the balance sheet. It's at December 31st, 2023. So it's not a period of time. It's a point in time. So that's the first thing you want to know about the balance sheet. It's a one point in time, December 31st. Now, the balance sheet is organized. The three categories are hopefully, you know, this assets, liabilities, and equity. And within assets, this is going to be a classified balance sheet. So we're going to bring the assets into current, non-current. If we have investments, if we have intangibles, we have classified balance sheets. You want to understand this? The first thing we're going to start with is current assets. Current assets. What are current assets? Current assets, assets that it's going to be converted to cash, sold, or received in cash within the next 12 months. Well, obviously, if we look, let's start with the first account. Cash is cash, cash, of course. So cash is a current asset. So cash by default is a current asset. Account receivable, 57,000. What is account receivable? Account receivable is when you sell on account. And when you sell on account, you expect to receive cash. Well, when you sell on account, do you expect to receive cash within 12 months or longer than 12 months? I hope you know this. It's less. So it's going to be converted to cash. Inventory, 63,000. Is inventory a current asset or something else? Well, when I have inventory, what do I expect to do? I expect to sell it in the near future and convert it to cash. And I hope it's not going to be longer than a year, right? So inventory would also be considered current asset. Prepaid expenses. Well, when you buy prepaid expenses, when do you expect to buy them for? For how long do you buy prepaid expenses for a year, two years, three years? Usually when you buy prepaid expenses, usually you buy them less than a year. So you don't want to prepay your expenses. Some companies do because you might have a good deal, but still it's considered to a great degree prepaid expense. Short-term asset, okay? Because it's going to be consumed within one year. So that's 33,000. We're done. Equipment, 140,000. When a company buys equipment, do they buy it for a year or longer than a year? Let's think about it. Well, I hope you know this. When you buy property, plant, and equipment, those are long-term investment in your company longer than a year. Therefore, it's not current asset. Now, we can add up our current assets and they will add up to 226,000. So we are done with the first section of the asset, which is the current assets. Now, we're going to look at, you know, non-current assets. And under non-current assets, you could have property, plant, and equipment. You could have intangibles and you can have investments. So let's see what we have. Obviously, I already showed you we have property, plant, and equipment. So equipment, we have 140,000. We're done. What comes with the equipment? Oftentimes, with the equipment comes accumulated depreciation. It's a contra asset. It's going to reduce the equipment and it's going to give us net property, plant, and equipment. So 140 minus 52 equal to 88,000. So this is net property, plant, and equipment. We could have land in this area. We could have furniture. We could have furniture, a computer, someone and so forth. So this is the second section. You can call it the second section or this is starting from here going down. Those are all non-current, okay? Which is one of them is property, plant, and equipment. So we're done with property, plant, and equipment. It seems we don't have any investments, long-term investments, because if it's short-term, it goes here. If it's short-term, it goes with current assets. Now it seems we have an intangible, a patent, and it's listed at net of 58,000. So this is the patent. And after the patent, we have account spable. Account spable is a liability. We stop. Now we are ready to look at our total assets. Our total assets are 372,000, which is the current, total current assets, plus net property, plant, and equipment, plus net patent. Net patent means it's the patent minus amortization. They're not giving us the amortization account here. They're just keeping it simple. So total assets is 372,000. Now I expect liabilities and equities to be 372,000. Let's find out if that's the case. Now I'm going to move on and start to prepare my liabilities and stockholders equity section. And again, here I have two sections. I have current liabilities and long-term liabilities. Current liabilities are liabilities that's going to be paid off within one year or the operating cycle. Account spable always when someone sells you on account, they expect to be paid within one year. It's a current liability. Interest. When the bank, when you accrue interest, the bank wants their payment every year. So therefore, interest is current liability. Note spable do 10 years. So the telony, it's not due within the next 12 months. Therefore, this is long term. Therefore, total current liabilities is 32,000, total current liabilities. Now we could have a note spable that short term, but here they're telling us the note spable is due within 10 years. So you have to be careful here. And also note spable, I'm not going to go into this, you know, I'm not going to explain this here because I explained it in my lessons when I explained the classified balance sheet. A long-term note spable could be a short term. You could have a short-term portion and a long-term portion here. They're keeping it simple to assume it's all long-term because a long-term note spable could have a short-term portion. The payments that's due within the next 12 months at short term. So for example, in other words, let me just kind of take this 190,000. For example, this 190,000, for example, 10,000 of it could be short-term and 180 is long-term. So long-term could have a short-term portion and long-term portion. But here I'm not going to go into this discussion. If you want to learn about this, farhat-lectures.com, I have a whole lesson about classified balance sheet. So the long-term is 190,000. Now after the long-term, I have common stock and retained earnings. I hope you know this. Those are equity accounts. I can add up my total liabilities of 222,000. Very simple. I have two equity accounts, common stock and retained earnings. And this is my total stockholders' equity account, 150,000. Now in some trial balances, what I do to trick some students, I don't give you retained earnings. And I would say prepare a balance sheet and people would say, well, retained earnings can be zero. Well, no, it's a plug-in. It's the number that you will need to make it balance. Therefore, if I add liabilities plus equity, it should add up to 372,000, which is equal to my assets. So this is the basic structure of a balance sheet. Specifically, we prepared a classified balance sheet. You want to be very comfortable with the basic. This is as basic as it gets. If you don't know what goes on the balance sheet, how does it fit together? No worries. I have basic financial accounting courses. Also, my CP at the beginning of all my CPA review courses, I have basic accounting lessons for you to remember the basics because that's the key. At the end of this recording, I'm going to remind you to visit farhatlatchers.com. I don't replace your CPA review course. I'm a useful addition. I don't take that away with you. I don't compete with anyone. I don't compete with them because I can't. I serve a different purpose. I explain the material differently. I'm like that supplemental tool or that vitamin pill that's going to help you improve your grade. Your risk with me is one month of subscription. Your potential gain is passing the exam. Good luck, study hard, and of course, stay safe.