Page 165 - Budgeting for Managers

Budgeting for Managers
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Asset Any item on a company’s books that is part of the
value of the company. If the balance sheet is prepared on an
accrual basis, assets include accounts receivable.
Liability Any item on a company’s books that reduces the value of
the company. If the balance sheet is prepared on an accrual basis, liabil-
ities include accounts payable. Liabilities are considered short term if
they’re due to be paid within the fiscal year and long term if they’re due
to be paid after the current fiscal year.
Equity The net value of a company, calculated as assets minus liabili-
ties.The balance sheet shows how that value would be distributed to
stockholders and owners.
Book value The value recorded on the accounting books for physi-
cal items, such as product or manufacturing inventory and equipment
or property owned by the company.
Financial statements can be prepared for any time period.
It’s typical to prepare them monthly, quarterly, and for the fis-
cal year-to-date at the end of each month. The two most
important documents in the set of financial statements are the
balance sheet (Table 9-6) and the income and expense state-
ment (Table 9-7).
The balance sheet shows the current value of the company
as of any particular day. There are three major sections: Assets,
Liabilities, and Equity. Here’s the easiest way to understand the
three terms: if the company settled all its accounts on this day,
the assets would be its gross value (including money owed to
the company), liabilities would be any money the company
owes that would reduce its value, and equity (assets minus lia-
bilities) would be the net worth of the company.
The income and expense statement shows how much
money has come into and gone out of the company during a
particular time period. In Table 9-7, we see the annual state-
ment that goes with the balance sheet in Table 9-6. In this case,
the owners do all the work; there’s no payroll for staff to include
under expenses.
When we look at the financial statements for any period, we
can learn about the fiscal health and operational successes and