Chapter 1, Problem 1.10BE

To determine

Balance Sheet:

Balance sheet shows the available assets (owner’s equity and outsider’s equity) and owed liabilities from investing and financial activities of a company. This statement reveals the financial health of company. Therefore, this statement is also called as the Statement of Financial Position. It helps the users to know the creditworthiness of a company as to whether the company has enough assets to pay off its liabilities. The main components of a balance sheet are assets, liabilities, and stockholders’ equity.

Cash:

Cash represents legal tender or coins used to exchange goods or services and debt. Cash also includes the value of assets, which can be further converted into cash, as recorded by a business entity. It is also called money, in its physical form.

Accounts receivable:

The amount owed by customers to a business is called account receivable. It can be converted into cash on a future date, as the business has provided its service or product but has not received payment yet.

Accounts payable:

The amount owed by a business is called accounts payable. It results in the loss of cash, as it is to be used in the future for making payments to debtors. This happens when the business has not provided its service or product but has received payment.

Common stock:

It is the share of ownership offered to stockholders in lieu of their money invested in the business. The shareholders are paid by a business from the profit earned in the form of dividend. As it is paid from the profit to the shareholders, it automatically becomes a part of shareholders’ equity.

To prepare: The balance sheet of Company E as on December 31, 2015.