Accrual Accounting

Liabilities are grouped in much the same manner as assets:

1. Current liabilities - liabilities that you'll pay off within one year
2. Long-term liabilities - liabilities that don't become due for more than one year
   

Recall that your liabilities come from your two loans: one which is payable in a year and considered current, and one which is long term and due in five years.

Now we're ready to review your beginning balance sheet, which is shown in Figure 12.14 "Beginning Balance Sheet for The College Shop". Once again, your balance sheet balances: Your total assets of $275,000 equal your total liabilities plus owner's equity of $275,000.

Figure 12.14 Beginning Balance Sheet for The College Shop