Showing the Proprietorship of These Types.—The methods of showing in the balance sheet the proprietorship for these three types of organization differ somewhat. The title under which proprietorship is listed is Capital. In a single proprietorship such title is preceded by the proprietor’s name, as shown in the following illustration:
| Assets | ||
| Cash | $2,000.00 | |
| Accounts Receivable | 5,000.00 | |
| Merchandise | 3,000.00 | |
| Furniture and Fixtures | 500.00 | |
| Total Assets | $10,500.00 | |
| Liabilities | ||
| Accounts Payable | $4,450.00 | |
| Due Clerk | 50.00 | |
| Total Liabilities | 4,500.00 | |
| Proprietorship | ||
| James Runyon, Capital | $ 6,000.00 | |
In a partnership the capital is not shown in one item, each partner’s interest being stated separately, thus:
| Assets | ||
| Cash | $ 2,500.00 | |
| Accounts Receivable | 10,250.00 | |
| Merchandise | 8,750.00 | |
| Furniture and Fixtures | 625.00 | |
| Total Assets | $ 22,125.00 | |
| Liabilities | ||
| Notes Payable | $ 1,660.00 | |
| Accounts Payable | 5,465.00 | |
| Total Liabilities | 7,125.00 | |
| Proprietorship | ||
| Represented by: | ||
| James Runyon, Capital | $ 8,000.00 | |
| Philip Adams, Capital | 7,000.00 | $ 15,000.00 |
In a corporation, proprietorship is shown by the aggregate of the outstanding shares of stock, which are valued at a fixed par, or cost, under the single title Capital Stock, and if the proprietorship is greater than that indicated under this title, the excess is listed separately under the title Surplus or some of the other proprietorship titles already explained. This method of showing proprietorship is prescribed by law and is an effort to inform creditors, or those who may become creditors, that the corporation has observed the legal requirement not to distribute to stockholders any of its original capital. Hence, the capital stock of the corporation must be listed separately from the other items of proprietorship. Any changes in proprietorship during the life of the corporation are taken care of under these other titles, somewhat as illustrated below.
| Assets | ||
| Cash | $ 1,850.48 | |
| Notes Receivable | 1,645.65 | |
| Accounts Receivable | 15,285.35 | |
| Merchandise | 10,045.94 | |
| Supplies | 1,145.37 | |
| Furniture and Fixtures | 1,636.97 | |
| Delivery Equipment | 1,427.50 | |
| Buildings | 8,000.00 | |
| Land | 2,000.00 | |
| Total Assets | $ 43,037.26 | |
| Liabilities | ||
| Accounts Payable | $ 5,762.26 | |
| Notes Payable | 4,250.00 | |
| Salaries Due but Unpaid | 25.00 | |
| Mortgage on Land and Buildings | 3,000.00 | |
| Total Liabilities | 13,037.26 | |
| Proprietorship | ||
| Represented by: | ||
| Capital Stock | $ 25,000.00 | |
| Surplus | 5,000.00 | $ 30,000.00 |
CHAPTER III
THE BALANCE SHEET
Purpose and Use.—The balance sheet of a business is designed to show its financial condition at a given time. As previously illustrated, it marshals the assets in one list or schedule, and the liabilities in another. The difference between the totals of the two schedules gives the present or net worth of the business. In compiling a balance sheet it is not sufficient to give simply the figures of proprietorship or net worth; schedules of assets and liabilities must be drawn up to show the items making up that net worth. From the viewpoint of a prospective investor or purchaser, a banker to whom the business has applied for a loan, or a concern considering the advisability of extending it credit on a bill of goods, it makes all the difference in the world to know that with a net value of $10,000 the business has assets of $15,000 and liabilities of $5,000; or to know that its assets are $260,000 and its liabilities $250,000.
The ratio of total assets to total liabilities is almost as important information to an investor, purchaser, banker, or creditor as is the character of the assets and liabilities. If the assets are in properties for which there is not a ready market and the liabilities are claims which mature soon and will have to be met, the situation is unfavorable. If there are large values invested in easily salable assets; if there is a large balance of cash on hand after meeting current claims and providing for those which will soon mature; if other liabilities are of a more permanent nature, such as mortgages or long-time notes not requiring immediate attention—the situation may show evidence of too large a capital, or of inefficient management as indicated by the failure to invest a part of the surplus cash in properties from which some return might be secured.
Form and Content.—Questions of the kind raised above are not usually capable of definite answer from the information contained on the balance sheet alone. Oftentimes information as to the volume of business done, future plans for expansion or contraction of business operations, and so forth, is needed in addition to that supplied by the balance sheet. Of immediate interest to us, however, is the information contained in the balance sheet. Here two main problems are met: that relating to the form of the balance sheet, and that concerned with the content of the balance sheet.