Business: Balance Sheet

In the past two business classes, we have learned about the specific terms used in accounting and the importance of accounting in regards to businesses.

Why is accounting important? Accounting helps people keep track of financial transactions, pay taxes, etc. There are a number of types of accounts, including income statements, which show profit vs. loss, and balance sheets, which we have been focusing on. Balance sheets tells us how much a company is worth, and shows what a company owns, as well as what it owes.

The chart on the left is the balance sheet for Starbucks Corporation. Current Assets are the things a business owns, which are used up during production. Based on the chart, we can see that Starbucks' current assets include: Cash and cash equivalents, Short-term investments, Net receivables, Inventory, and other current assets. In 2015, the cost for these current assets added up to a total of $4,352,700. This means that $4,352,700 was spent on things that were used during the production of their goods.
Fixed assets, on the other hand, are the things a business owns but which are not used up in production. In 2015, the total amount of money spent on fixed assets in the Starbucks company was $4,088,300.

The term, "liabilities" refers to the amount of money a business owes to other people. For Starbucks Corporation, liabilities include: Accounts payable, current liabilities, long term debt, other liabilities, and minority interest.In 2015, Starbucks' liabilities added up to a total of $6,628,100. This means this is the amount of money the company owes to people outside of their business.




Shareholders Equity is is the difference between total assets and total liabilities. For Starbucks, its total liabilities and equity added up to a total of $12,446,100 in 2015. One key relationship is: Total Assets - Total Liabilities = Owner's Wealth.
In conclusion, accounting is extremely crucial to the success of businesses. It not only provides information necessary for economic decision making, but also for financial reports.