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Chapter 16: Cash is King - Page 16.13

In the Balance Sheet illustration at the top of the previous page:

The "Cash" row is the balance in your checkbook. You calculate this with the cash flow, the subject of this chapter.
"Accounts Receivable" is the money owed to you by customers for sales already made. The balance increases with sales on credit, and decreases with payments of accounts receivable. For any month, the ending balance is the sum of the previous ending balance, plus new sales on credit, minus payments received. The details are in the Receivables Detail table on page 16.4.
Calculate the "Inventory" balance as the previous balance minus direct cost of sales plus new inventory purchases. The details are in the Inventory Detail table shown on page 16.8.
Calculate "Other Current Assets" as the previous balance plus new assets purchased (from the cash spent section of the direct cash flow table) minus sale of assets (from the cash received section).
"Long-term Assets" are the depreciable assets, such as plant and equipment, vehicles, etc. This month's balance is equal to last month's balance plus new assets purchased, minus sale of assets.
"Accumulated Depreciation" decreases the value of the capital assets. This month's balance is last month's balance plus new depreciation, from the income statement.
"Accounts Payable" will be last month's balance plus additions (a subset of costs and expenses) minus payments of payables. New payables will include new inventory not paid for when purchased, plus indirect costs of sales not paid as incurred, operating expenses not paid as incurred, and similar items. The details are in the Payment Detail table shown on page 16.6.
"Current Borrowing" will be equal to last month's balance plus new borrowing minus principal payments. Interest payments are not included, because they go into the income statement and don't affect the balance. Principal payments and new borrowing should come from the cash flow.
"Other Current Liabilities" are things like accrued taxes and accrued salary; liabilities you know you have but haven't paid. These usually don't cost interest.
"Long-term Liabilities" increase when you borrow and decrease with payment of principal. The balance is going to be last month's balance plus new borrowing as a source of cash, minus principal payments as a use of cash. In the sample case, the March balance shows a $100 increase for a new loan, minus a $3 decrease for payment of principal, so that the $376 at the end of March is exactly $97 more than the $279 at the end of February.
"Paid-in Capital" is money invested. The balance should be last month's balance plus new investment from sources of cash, minus dividends from uses of cash.
"Retained Earnings" is the accumulated earnings reinvested in the company, not taken out as dividends. Normally this changes once a year when the annual statements are prepared.
"Earnings" are the accumulated earnings since the end of the last year. This month's balance should be equal to last month's balance plus this month's earnings. At the end of the year, with an annual adjustment, earnings still left in the business become retained earnings.

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