More of this Feature • Part 1: Lesson 3 Main • Part 2: How to Get Statements • Part 3: What's a Balance Sheet • Part 4: Typical Balance Sheet • Part 5: Current Assets • Part 6: Receivables • Part 7: Receivable Turns • Part 8: Inventory • Part 9: Inventory Turns • Part 10: Inventory Example • Part 11: Prepaid Expenses • Part 12: Current Liabilities • Part 13: Working Capital • Part 14: WC Per Dollar of Sales • Part 15: Negative Work. Cap • Part 16: Current Ratio • Part 17: Quick Ratio • Part 18: Long Term Investment • Part 19: Property, Plant, Equip. • Part 20: Intangible Assets • Part 21: Goodwill • Part 22: Deferred Charges • Part 23: Debt, Debt to Equity • Part 24: Other Liabilities • Part 25: Minority Interest • Part 26: Shareholder Equity • Part 27: Book Value • Part 28: Com. & Pref. Shares • Part 29: Cap. Surplus, Reserve • Part 30: Treasury Stock • Part 31: Retained Earnings • Part 32: Formula & Calculations • Part 33: Putting it all Together • Part 34: Segment 2

Related Resources • Investing Lesson 1 • Investing Lesson 2 • Investing Lesson 3 • More Investing Lessons

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Prepaid Expenses

In the course of every day operations, businesses will have to pay for goods or services before they actually receive the product.  If a jewelry store moved into your neighborhood mall, it would most likely have to sign a rent agreement and pay six to twelve months' rent in advance.  If the monthly rent was $1,000 and the business prepaid for an entire year, they would put $12,000 on the balance sheet under Prepaid Expenses ($1,000 monthly rent x 12 months = $12,000).  Each month, they would deduct 1/12 from the prepaid expenses until the end of the year, at which point, the amount would be $0.

Sometimes companies decide to prepay taxes, salaries, utility bills, rent, or the interest on their debt.  These would all be pooled together and put on the balance sheet under this heading.

By their very nature, Prepaid Expenses are a small part of the balance sheet.  They are relatively unimportant in your analysis and shouldn't be given too much attention.

Notes Receivable

Notes Receivable are debts owed to the company which are payable within one year.

Other Current Assets

Other current assets are non-cash assets that are owed to the company within one year.

Non Standard Items

Sometimes companies put items on their balance sheet which aren't standard.  If you find yourself analyzing a balance sheet and an oddball term shows up, search for it at investorwords or investopedia.  If that still doesn't work, you can call your broker or a local banker, all of whom should be happy to give you an explanation of a term.

I would recommend you get a copy of Barron's "Dictionary of Finance and Investing Terms" ().  They are relatively inexpensive ($10 or $11), and define over 4,000 terms.  This can be a huge asset regardless of the financial statement you are looking at.  You may also find the "Dictionary of Business Terms" useful as well.  It has 7,500 entries covering almost every business definition you could possibly ask for ().  While neither is required to do balance sheet analysis, they can be a big help.

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