The Balance Sheet

Why this matters

The income statement tells you how a year went. The balance sheet tells you where the company stands: how much cash it has, how much it owes and when, and what all its years of profits have been turned into. A company with great profits and a weak balance sheet can still get into serious trouble.

Line item	End of this year	End of last year
Assets
Cash	60	40
Accounts receivable	50	44
Inventory	45	40
Total current assets	155	124
Property, plant, and equipment	180	165
Total assets	335	289
Liabilities
Accounts payable	30	27
Accrued expenses	10	9
Deferred revenue	15	12
Total current liabilities	55	48
Long-term debt	90	100
Total liabilities	145	148
Shareholders' equity
Paid-in capital	60	55
Retained earnings	130	86
Total shareholders' equity	190	141
Total liabilities and shareholders' equity	335	289

STU Corp is fictional. Amounts in $ millions.

Assets: what STU Corp owns

Assets are things a company owns that have value: physical things like factories and equipment, intangible things like patents, and cash and investments. Current assets are expected to turn into cash within a year; other assets take longer or are used to run the business.¹

• Cash. Money in the bank.
• Accounts receivable. Money retailers owe STU Corp for products already delivered. Stores usually pay weeks later.
• Inventory. Materials, and finished systems and cartridges waiting to be sold.
• Property, plant, and equipment. The factory and its machines, recorded at what they cost minus the depreciation charged so far. That isn't necessarily what they could be sold for.

Liabilities: what STU Corp owes

Liabilities are what a company owes others: money it borrowed, payments due to suppliers, wages, taxes, and goods or services it has promised to deliver. Current liabilities are due within a year; long-term liabilities come due later.¹

• Accounts payable. What STU Corp owes its suppliers for materials it has received.
• Accrued expenses. Costs it has run up but not yet paid, such as wages employees have earned since their last payday.
• Deferred revenue. Subscribers who paid in advance. STU Corp has their money but still owes them cartridges, so it's a liability until the cartridges are delivered.
• Long-term debt. Loans due in more than a year.

The rest of this lesson is for members

Still to come in this lesson: Shareholders' equity: what's left for the owners, Working capital, the key takeaways, and 2 quiz questions with explanations.

Membership opens every lesson in the curriculum, the capstone projects, the interactive tools, and the members-only channels in the Hyperion Entities Discord. The first lesson of every module stays free.

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