the credit side of the balance sheet

the credit side of the balance sheet is break-down into two sections liabilities and equity, this done as follows:
1- current liabilities : current liabilities are those liabilities that will be settled within one year, or during the operating cycle if it is longer than one year. another way of looking at the classification of current liabilities is that they will require either the use of current assets or the creation of other current liabilities to be settled.
Examples of current liabilities are:
- payable s of a variety of sorts arising from the course of business.
- unearned revenues.
- Obligations that, by their terms, are due on demand, even if the "term" of the obligation is greater than one year.
- long-term obligations that are callable at the balance sheet date due to some violation by the company.
current liabilities do not include the following items:
- Debts to be paid by funds that are in accounts classified as non-current.
- the parts of short-term obligations that are intended to be refinanced by long-term obligations.in order to reclassify these current liabilities into non-current the company must have demonstrated the ability to refinance these obligations.
2- non-current liabilities
non-current liabilities are those that will not be settled within one year, or the operating cycle if the operating cycle is longer than one year.
Examples of non-current liabilities are:
- long-term notes or bond payable.
- liabilities from capital leases.
- pension obligation.
- Deferred Tax liabilities.
- Obligations under warranty agreements.
- Advances for long-term commitments to provide goods and services, and long-term deferred revenue.
3- Equity\Net assets.
the residual interest in the assets of an entity that remains after deducting its liabilities, the equity section consists of the following:
- common stock, preferred stock.
- Additional-paid-In-Capital.
- Retained Earning.

The debt side of the balance sheet

the debt side of the balance sheet is break-down into two sections Current assets and non-current assets, this done as follows:
1- current Assets :
Current assets are those that will be converted into cast within 12 months or within one operating cycle if the operating cycle is longer than 12 months. This means that an asset that will be converted in 18 months may be classified as current asset, but all assets that will be converted in less than 12 months will always be classified as current assets.
Current assets are perhaps the easiest of the different sections of the balance sheet and include;
- cash
- cash equivalents
- inventories
- Receivables
- Certain securities
- Short-term investment maturing
- prepaid expenses
2- non-current assets
Non-current assets are those assets that will not be converted into cash within one year or during the operating cycle if the operating cycle is longer than one year.
There are a number of different categories of non-current assets. The accounting issues surrounding non-current assets are slightly more involved than current assets.
A- Long-term investment and funds that are expected to be held for more than one year are included in non-current assets. Examples of these items are:
- investment in securities made to control or influence the other organization.
- available-for-sale and held-to-maturity securities that are not current.
- funds that are restricted for non-current purposes (the retirement of debt or to pay for the construction of fixed assets).
- the cash surrender value of life insurance policy. (The cash surrender value of life insurance policy is essentially the amount that the holder of the policy would get from the insurance company if he or she cancelled their insurance.)
- fixed assets not used in operations (such as idle facilities or land held for future use).
2- property, plant and equipment (fixed assets)
These are tangible assets that are used in operations and will be used past the end of the current period. When these items are purchased they are recorded at their purchase price, and this amount is then expended over the life of the asset through depreciation.
Examples of property, plant and equipment (P.P.E) are building, machinery, equipment, cars, leasehold improvements, and assets that have been obtained through a capital lease.
3- Intangible assets
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-http://thefutureofmoney.blogspot.com/2009/06/intangible-assets.html
-http://thefutureofmoney.blogspot.com/2009/06/patent-intangible-assets.html
4- other non-current assets
This is the "other" category that gets all of the non-current assets that are not included in any other category. Examples of these items are;
- long-term receivables from unusual transactions (loans to officers or employees)
- bond issue costs
- long-term prepayments
- Deferred tax assets

The balance sheet

The balance sheet, also called statement of financial position, because the balance sheet provides information about an entity's assets, liabilities and owner's equity as well as their relationships to each other at a point in time. The balance sheet is a picture of what the company owns and owes at a particular point in time (usually the end of period).
The balance sheet helps users to assess the liquidity, financial flexibility, profitability and risk of a company.
The balance sheet presents three of the elements of the financial statements, assets, liability and equity. It presents them in what is called the proprietary. This means that net assets are viewed as belonging to the owner or proprietor.
To can understand the elements of the balance sheet, you need to know some definition, such as:
1- Assets, probable future benefits obtained or controlled by a particular entity as a result of a past transaction.
2- liabilities , probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities as the result of a past transaction.
Valuation accounts are used for both assets and liabilities. These valuation accounts are neither assets nor liabilities. An example of a valuation account is accumulated depreciation or unamortized bond premium.
3- Equity or net assets, the residual interest in assets of an entity that remains after deducting its liabilities. In a sense equity is the liability that the entity has to the owners of that entity.
Equity is found only in business (for-profit) enterprise.
In the balance sheet, assets and liabilities are classified as either current or non-current (this is the same split as between short-term and long-term, but the more correct terminology is current and non-current.). The distinction between current and non-current is based upon the time frame in which the asset or liability is expected to be settled (for liabilities) or converted into cash for asset).
the operating cycle is average time between the acquisition of resources (or inventory) and the final receipt of cash from their sale.

the FASB and standard setting process

The FASB IS made up of seven salaried members. None of the members can maintain any business relations during their time on the Board, and four of the seven must be CPAs.
It is interesting to note that the FASB is not a governmental body, but rather a private sector group.
These seven members first determine the agenda for FASB and then appoint a task force to consider each topic on the agenda and all aspects of the area under consideration. Following this initial work, the task force drafts and releases a discussion memorandum to all interest parties, including making it available to the public. Usually after 60 days, a public hearing is held in relation to the discussion memorandum. Anyone who wishes can make a presentation at this hearing.
After the hearing the FASB evaluates the public response and prepares an exposure draft of the proposed statement. After it is released there is 30-day period for public comments. Following receipt of the public comments, the FASB either revises the draft if necessary or votes on the issuance of a Standards statement.
After a standard issued the FASB may issue formal FASB interpretations of the statement. Members of the FASB must vote on these interpretations and, if passed, they carry the same the authoritative weight as the standard itself.

payroll accounting

Payroll is a liability. Every business incurs a number of accrued liabilities relating to its payroll. The largest of these liabilities is the obligation to pay employees for services rendered during the period. A payroll expense often is among the largest expenses of the business organization. Accrued payroll liabilities, however, seldom accumulate to large amounts because they are paid in full at frequent intervals.
Accounting for payrolls involves much more than merely recording the liability for accrued wages and salaries payable. Employers must compute numerous taxes which the government levies either upon employees or upon the employer. In fact, one might say that the total wages and salaries expense (or gross pay) represents only the "starting point" of payroll computations.

Interest payable

Interest the cost of borrowing accrues with the passage of time. When companies enter into long term financing agreements, they may become committed to paying large amounts of interest for many years to come. At any balance sheet date, however, only a small portion of this total interest obligation represents "liability".
You must remember, liabilities arising from past transaction or events. Therefore, the only interest obligation which represents a "liability" is the unpaid interest which has already accrued. (at the end of each period , any accrued interest payable is recorded by debiting interest expense and crediting interest payable.)

Accrued liabilities

Accrued liabilities arise from the recognition of expenses for which payment will be made in future period. Thus accrued liabilities also are called accrued expenses. The need to record accrued liabilities arises from the fact that certain expenses are incurred by the business before they are actually paid. Examples of accrued liabilities include interest payable, income taxes payable, and amount related to payrolls. As accrued liabilities stem from the recording of expenses, the matching principle governs the timing of their recognition.
All the companies incur accrued liabilities. In most cases, however, these liabilities are paid at frequent intervals. Therefore, they usually do not accumulate to large amounts. In a balance sheet, accrued liabilities frequently are included in the amount
Shown as "accounts Payable".

Current liabilities

Current liabilities are obligations that must be paid within one year or within the operating cycle, whichever is longer. Another requirement for classification as a current liability is the expectation that the debt will be paid from current assets. Liabilities that do not meet these conditions are classified as long-term liabilities.

liabilities characteristics

Estimated liabilities have two basic characteristics: the liability is known to exist, but the precise dollar amount cannot be determined until a later date. For instance, the automobiles sold by most automakers are accompanied by a warranty obligating the automaker to replace defective parts for a period of several years. As each car is sold, the automaker incurs a liability to perform any work which may be required under the warranty. The dollar amount of this liability, however, can only be estimated

the nature of liability (2)

If the borrower defaults on a secured loan, the creditors may foreclose upon the pledged assets. Assets which have been pledged as security for loans should be identified in notes accompanying the borrower's financial statements.
Most long-term liabilities, and some long term once require the borrower to pay interest. Only interest payable as of the balance sheet date appears as a liability in the borrower's obligation to pay interest in future periods sometimes is disclosed in the notes to the financial statements, but it is not shown as an existing liability.
The total amount of interest expense for a period appears in the company's income statement, and is also deductible in calculating the taxable income of the business. The deductibility of interest is a major advantage of using liabilities to finance business assets. After considering the reduction in income taxes, the effect cost of borrowing is often only 60%to70% of the stated rate of interest.