[MUSIC] In this video we are going to prepare the balance sheet. Remember, the first and most important financial statement. So all the accounts are included on the balance sheet, and therefore the first thing that we need to do is take the T-accounts that we have and calculate the ending balance of each one of the accounts. So as you see here, we have calculated all the ending balances by adding all the debits and credits on each account together with the beginning balance, remember? And so we get an ending balance. And now this ending balance is going to be the balance that shows on the balance sheet for each account. And so what we are getting here is a picture as of December 31st of year x2. Now, know that all the ending balances of all the assets and the ending balances of owner's equity and liabilities have to add up to the same amount to respect the basic accounting equality. If that is not the case, it means that we made a mistake in one of the transactions. Because in every single transaction, all the debits and credits have to be the same. This is the way to make sure that the basic accounting equality always holds. So what we do here is now taking all these ending balances, I'm placing them here on the balance sheet. Organizing all the accounts, and their current assets, noncurrent assets, current liabilities, noncurrent liabilities, and owner's equity. As you see here, he accounts are classified on the asset side from more liquidity to less liquidity. On the liabilities and owner's equity side, they are classified from shorter maturity to longer maturity. Share capital and retain profits, they don't have any maturity, we don't have any obligation to pay that money to anyone. I'm sure you remember that dividends are voluntary, I mean we don't have any obligation to pay dividends. I show you dividends have to be approved by all the shareholders in the company. So shareholders have to vote in the annual shareholders meeting to approve the dividend payments. Okay, so what you see on this balance sheet is that we have lot of cash, and also marketable securities that actually are very close to cash. Because at any point in time we can sell these Apple shares in the stock market and get the cash to use it immediately. So the company has a lot of liquidity. Actually, if you take a look at current assets, they are much bigger than current liabilities. Remember, current liabilities is the amount that the company has to repay within the next year. Current assets are cash and other assets that are close to cash that are going to turn into cash in the short run. Like accounts receivable that we are going to collect in 60 days or less than 60 days, or inventories that we expect to sell and also collect the cash. Therefore, in the case of this company, it looks like there is a good balance, financing balance between current assets and current liabilities. We also can look at this from the point of view of noncurrent assets. As you see here, long-term sources of capital, such as the bank loan, the long-term bank loan of 30,000 euros plus owner's equity are more than enough to cover the fixed assets that we have. Actually in this business, as you see, fixed assets or noncurrent assets, are very small in proportion to current assets. This is typical of commercial businesses where what you have are inventories, account receivable, but you don't need big investments in noncurrent assets such as machinery or factories, etc. This balance sheet is a picture of the point in time as of December 31st of year x2. And so we don't have a sense of what happened during the year. To do that, we should compare this to the beginning balance in the beginning of the year, and this is something I'm going to do next week. So next week I'm going to analyze a little bit more the evolution of the financial statements in this company. For the moment, let's leave it here. In the next video, we are going to prepare the income statement. So we're going to learn a little bit more about what happened during the year with the profit and loss accounts. [MUSIC]
