We continue with our look at the Acme’s balance sheet. This week we are examining the Liabilities and Owners Equity half of this report.

We continue this week with our look at the Acme’s balance sheet. This week we are examining the Liabilities and Owners Equity half of this report.

On the first line, we see the Accounts Payable. This is the money we owe to our suppliers. It increases in 2008 by 31%, even as our sales decreased. When this happens we are basically borrowing money, usually with no interest, from our suppliers by not paying them on time. This is one way a cash-strapped company can continue to finance its operations if it can’t get any bank credit. It is also one way by which we helped finance our increased inventory for 2008. Fortunately, we have good customers and an aggressive collection department since last week we saw how our Receivables has decreased.

In addition, we also borrowed $7 million to purchase the $10 million machinery. The accrued expenses are usually salaries owed (such as accrued vacation benefits), taxes not yet paid and other bills that have been put on the books unpaid. We have no long-term debt such as a mortgage.

Our stockholders have paid in $38 million in capital. Since we are a privately held company, there are no regular stock purchases or sales. Note at the bottom that the total must exactly “balance” the total in Assets from last week. The retained earnings are what cash is left after the dividends were paid. In effect, we took $3 million in cash plus the $7 million in notes to pay for the new machinery. Our retained earnings in 2008 reflect this plus the paid out dividends.