Page 166 - Plant design and economics for chemical engineers

140 PLANT DESIGN AND ECONOMICS FOR CHEMICAL ENGINEERS

Any engineering accounting study can ultimately be reduced to one of the forms
represented by Eq. (2) or (3).

THEBALANCESHEET
A balance sheet for an industrial concern is based on Eq. (1) or (2) and shows
the financial condition at any given date. The amount of detail included varies
depending on the purpose. Consolidated balance sheets based on the last day of
the fiscal year are included in the annual report of a corporation. These reports
are intended for distribution to stockholders, and the balance sheets present the
pertinent information without listing each individual asset and equity in detail.
Assets are commonly divided into the classifications of current, fixed, and
miscellaneous. Current assets, in principle, represent capital which can readily be
converted into cash. Examples would be accounts receivable, inventories, cash,
and marketable securities. These are liquid assets. On the other hand, jhd
ussets, such as land, buildings, and equipment, cannot be converted into immedi-
ate cash. Deferred charges, other investments, notes and accounts due after
1 year, and similar items are ordinarily listed as miscellaneous assets under
separate headings.
Modern balance sheets often use the general term liabilities in place of
equities. Current liabilities are grouped together and include all liabilities such as
accounts payable, debts, and tax accruals due within 12 months of the balance-
sheet date. The net working capital of a company can be obtained directly from
the balance sheet as the difference between current assets and current liabili-
ties. Other liabilities, such as long-term debts, deferred credits, and reserves are
listed under separate headings. Proprietorship, stockholders’ equity, or capital
stock and surplus complete the record on the equity (or liability) side of the
balance sheet.
Consolidated balance sheets are ordinarily presented with assets listed on
the left and liabilities, including proprietorship, listed on the right. As indicated
in Eq. (11, the total value of the assets must equal the total value of the equities.
A typical balance sheet of this type is presented in Fig. 5-2.
The value of property items, such as land, buildings, and equipment, is
usualIy reported as the value of the asset at the time of purchase. Depreciation
reserves are also indicated, and the difference between the original property
cost and the depreciation reserve represents the book value of the property.
Thus, in depreciation accounting, separate records showing accumulation in the
depreciation reserve must be maintained. In the customary account, reserve for
depreciation is not actually a separate fund but is merely a bookkeeping method
for recording the decline in property value.
The ratio of total current assets to total current liabilities is called the
current ratio. The ratio of immediately available cash (i.e., cash plus U.S.
Government and other marketable securities) to total current liabilities is
known as the cash ratio. The current and cash ratios are valuable for determin-
ing the ability to meet the financial obligations, and these ratios are examined