Facebook, Inc.: Step-by-step balance sheet

Summary

The video explains how to construct and read Facebook, Inc.’s balance sheet. A balance sheet reports a company’s financial position at one specific date, showing its assets, liabilities, and stockholders’ equity. It is the only one of the four financial statements covered in the lesson that reports balances “as of” a single date; the others report activity over a period.

The four statements are prepared in this order: income statement, statement of retained earnings, balance sheet, and statement of cash flows. The ending retained earnings balance carries from the statement of retained earnings to the balance sheet.

How to Read the Balance Sheet

• Heading: The first line gives the company’s official name, the second identifies the statement, and the date line specifies the date the balances apply to.
• Units: “In millions” means six zeroes have been omitted to make the figures easier to read.
• Assets come first:
  • Current assets are expected to be used up or converted to cash within one year or the operating cycle.
  • Current assets are listed from most liquid (closest to cash) to least liquid. Cash or cash equivalents appear first.
  • Facebook’s listed current assets include cash and cash equivalents, marketable securities, accounts receivable (net), and prepaid and other expenses. Inventory, if applicable, would also appear in this section.
  • Long-term assets follow. Facebook’s examples include property and equipment (net), intangible assets (net), and other long-term assets.
  • Total assets is the sum of current and long-term assets.
• Liabilities and stockholders’ equity follow:
  • Current liabilities are debts due within one year or the operating cycle. They are ordered from soonest due to latest due. Facebook’s examples include accounts payable and other current liabilities.
  • Long-term liabilities are listed after current liabilities. Total liabilities combines current and long-term liabilities.
  • Stockholders’ equity includes accounts such as common stock and retained earnings. The ending retained earnings balance comes from the statement of retained earnings.
  • Total liabilities and stockholders’ equity adds total liabilities and total equity.
• Formatting cues: A dollar sign is used for the top figure, subtotals, and final totals. A single underline signals that a subtotal or total calculation follows; a double underline marks a completed section total.
• Accounting equation: Total liabilities and stockholders’ equity must equal total assets, reflecting the equation Assets = Liabilities + Equity.

Knowledge Checks

• The balance sheet contains assets, liabilities, and stockholders’ equity. Revenues, losses, expenses, and gains are reported on the income statement.
• The balance sheet is the only one of the four statements that reports balances as of one date. The other statements cover a period of time.

Speakers and Sources Featured

• Wendy Sell-Tietz: Narrator and instructor.
• Facebook, Inc.: The company whose balance sheet is used as the example; the statement is adapted and condensed for classroom use.