Latest Top Balance Sheet Interview Questions and Answers
Q1. Where Does A Bond Sinking Fund Appear On The Balance Sheet?
A bond sinking fund is reported in the section of the balance sheet immediately after the current assets. The bond sinking fund is part of the long-term asset section that usually has the heading "Investments."
The bond sinking fund is a long-term (noncurrent) asset even if the fund contains only cash. The reason is the cash in the fund must be used to retire bonds, which are long-term liabilities. In other words, because the money in the bond sinking fund cannot be used to pay current liabilities, it must be reported outside of the working capital section of the balance sheet. (Working capital is current assets minus current liabilities.)
Q2. Where Are Accruals Reflected On The Balance Sheet?
Accrued expenses are reported in the current liabilities section of the balance sheet. Accrued expenses reported as current liabilities are the expenses that a company has incurred as of the balance sheet date, but have not yet been recorded or paid. Typical accrued expenses include wages, interest, utilities, repairs, bonuses, and taxes.
Accrued revenues are reported in the current assets section of the balance sheet. The accrued revenues reported on the balance sheet are the amounts earned by the company as of the balance sheet date that have not yet been recorded and the customers have not yet paid the company.
Accrued expenses and accrued revenues are also reflected in the income statement and in the statement of cash flows prepared under the indirect method. However, these financial statements reflect a time period instead of a point in time.
Q3. What Is The Difference Between A Trial Balance And A Balance Sheet?
A trial balance is an internal report that will remain in the accounting department. It is a listing of all of the accounts in the general ledger and their balances. However, the debit balances are entered in one column and the credit balances are entered in another column. Each column is then summed to prove that the total of the debit balances is equal to the total of the credit balances.
A balance sheet is one of the financial statements that will be distributed outside of the accounting department and is often distributed outside of the company. The balance sheet is organized into sections or classifications such as current assets, long-term investments, property, plant and equipment, other assets, current liabilities, long-term liabilities, and stockholders' equity. Only the asset, liability, and stockholders' equity account balances from the general ledger or from the trial balance are then presented in the appropriate section of the balance sheet. Totals are also provided for each section to assist the reader of the balance sheet. The balance sheet is also referred to as the statement of financial position or the statement of financial condition.
Q4. Why Does Our Company's Balance Sheet Report Its Land At Cost When It Is So Much More Valuable?
Accountants are guided by the cost principle. This requires accountants to report assets at their cost when acquired—not their replacement cost or market value. The historical cost is an objective amount that can easily be audited. In contrast, the market value is subjective: one person thinks the land is worth $1 million while another thinks it's worth $1.5 million.
Further support for the cost principle is the accountants' going concern assumption. A company is assumed to be continuing in business and will not be liquidating. If your company bought the land for possible expion, its cost is more relevant than the amount the company could get if it were liquidating. After all your company is not liquidating. The revenue recognition principle would be another reason why market values are not reported.
(P.S. I should add that some businesses are required to report assets at market value. I believe those businesses are in industries with significant markets and verifiable quoted market prices.)
Q5. What Is A Balance Sheet? Why Is It Prepared?
Balance Sheet is a Statement showing financial position of the business on a particular date. It has two side one source of funds i.e Liabilities, the left side of the balance sheet and application of funds i.e assets, the right side of the balance sheet. It is prepared after preparing trading and profit and loss account and has balances of real and personal accounts grouped and arranged in a proper way as assets and liabilities. It is prepared to know the exact financial position of the business on the last date of the financial year.
Q6. What Are Balance Sheet Accounts?
Balance sheet accounts are one of two types of general ledger accounts. (Income statement accounts make up the other type.) Balance sheet accounts are used to sort and store tractions involving assets, liabilities, and owner's or stockholders' equity. Examples of a corporation's balance sheet accounts include Cash, Accounts Receivable, Investments, Buildings, Equipment, Accumulated Depreciation, Notes Payable, Accounts Payable, Payroll Taxes Payable, Paid-in Capital, Retained Earnings, etc.
Balance sheet accounts are described as permanent or real accounts because at the end of the accounting year the balances in these accounts are not closed. Instead, the end-of-the-accounting-year balances will be carried forward to become the beginning balances in the next accounting year. (This is different from the income statement accounts, which begin each accounting year with zero balances.)
The balances in the balance sheet accounts are presented in a company's balance sheet, which is one of the main financial statements.
It will be helpful to keep in mind that every adjusting entry will require at least one balance sheet account and one income statement account.
Q7. How Should A Mortgage Loan Payable Be Reported On A Classified Balance Sheet?
First, let's make it clear that the amount in the account Mortgage Loan Payable should be the principal amount owed to the lender. Any interest that has accrued since the last payment should be reported as Interest Payable, a current liability. (Future interest is not reported on the balance sheet.)
Let's assume that a company has a mortgage loan payable of $238,000 and is required to make monthly payments of approximately $4,500 per month. Each of the monthly payments includes a $3,000 principal payment plus approximately $1,500 of interest. This me that during the next 12 months, the company will be required to repay $36,000 ($3,000 x 12 months) of principal. The required principal payments due within one year of the balance sheet date must be reported as a current liability. The remaining principal of $202,000 ($238,000 minus $36,000) will be reported as a long-term liability, since it is not due within one year of the balance sheet date.
You can find the amount of principal due within the next year by reviewing the loan amortization schedule for each loan or by asking your lender.
Q8. What Is A Balance Sheet And Why Is It Prepared?
The balance sheet is prepared in order to report an organization's financial position as of a specified moment, such as midnight on December 31.
A corporation's balance sheet reports its assets (resources that were acquired in past tractions), its liabilities (obligations and customer deposits), and its stockholders' equity (the difference between the amount of assets and liabilities). Some people state that the balance sheet reports the amounts of the assets and the claims against those assets (liabilities and stockholders' equity). Others state that the balance sheet reports a corporation's assets and the amount that was provided by creditors (the liabilities) and the amounts provided by the owners (stockholders' equity).
A classified balance sheet reports the current assets in a section that is separate from the long-term asset. Similarly, current liabilities are reported in a section that is separate from long-term liabilities. This allows bankers, owners, and others to easily compute the amount of an organization's working capital. (Working capital is defined as current assets minus current liabilities.)
The balance sheet has some limitations. For example, land and buildings are usually reported at cost minus the accumulated depreciation of the buildings. If these assets have increased in value, the fair value is not reported due to the cost principle. Also, brand names and trademarks may have significant value, but are not reported on the balance sheet, if they were not acquired in a traction.
The balance sheet should be read with the other financial statements (income statement, statement of cash flows, and the statement of changes in stockholders' equity) and with the notes to the financial statements.
Q9. How Are Fully Depreciated Assets Reported On The Balance Sheet?
Fully depreciated assets that continue to be used are reported at cost in the Property, Plant and Equipment section of the balance sheet. The accumulated depreciation for these assets is also reported in this section. As a result, the combination of these assets' costs minus their accumulated depreciation will likely be a net amount of zero. This net amount is the carrying amount, carrying value or book value.
The cost and accumulated depreciation will continue to be reported until the company disposes of the assets. The disposal might be the sale or the retirement of the assets.
Fully depreciated assets and their resulting book value of zero reinforces accountants' position that depreciation is a process to allocate assets' costs to expense; it is not a process for valuing assets.