A current liability is an amount owed that is expected to be satisfied within one operating cycle.
Current maturities of long-term debt: Portion of a long-term loan that is due within one operating cycle.
Notes payable: Loans due within one operating cycle.
Accounts payable: Amounts owed to suppliers. Typically due in 30-60 days.
Accrued liabilities: Amounts owed, within one operating cycle, to people other than suppliers (e.g., employees).
Deferred revenues: Cash received from customers in advance.
A long-term liability is an amount owed, but not due for more than one operating cycle. Typically in includes long-term loans.
Shareholders' equity is the net value of what shareholders have invested in a company. When the original owner or owners of a company first sell pieces of ownership to other investors on the open market, the process is called an initial public offering (IPO).
Common stock (face value): Value of stock on face of stock certificate. State laws require a stated value. Companies often use $0.01 as a face value.
Paid in capital: Amount of money investors have put into the company over and above the face value of the common stock.
Retained earnings: Profits the company has accumulated to date and not returned to the owners (shareholders) of the company. Return of profits to owners is called a dividend.
Accumulated other comprehensive income: There are some other things we put into the shareholders' equity section of the balance sheet that are not related to transactions with owners nor related to profits. [01]
Example: We'll see this in a later module but, some assets are adjusted to reflect their market value. When the values of these assets are adjusted, the offsetting journal entry for the unrealized gain or loss is recorded in equity instead of the income statement.
Notice above that Nike's Total shareholders' equity was $12,407 million as of May 31, 2017. This is called Nike's book value. Compare this to the Company's market value below of $87,063 million. Why are they different?
The answer is because the current accounting standards are conservative. Accounting standards, as they are currently written, result in companies recording losses much more quickly than they record gains. The end result is that the Balance Sheet records lower than actual asset values. It also results in some assets not being recorded (as Professor Lev notes). In this example, the value of Nike's brand isn't captured in any assets on its balance sheet. This in turn reduces shareholders' equity because shareholders' equity is the value of the company's assets available to owners after outstanding debts (i.e., shareholders' equity = assets - liabilities).