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Balance Sheet Explained – Example of Asset Categories for a Movie Theater

Let’s talk about balance sheets and the movies. So, a lot of times whenever you hear balance sheets explained it’s explained in a really abstract way, right? So you might have heard it described as something that your company owns and owes and you’ve probably heard these very abstract categories, like assets, liabilities, owner’s equity. What we’re going to do in this video is actually try to make some of those concepts a little bit more concrete by applying it to an example of a movie theater.

And so what we’re going to do, is actually talk through the assets section of the the balance sheet, which remember the assets section is really just a fancy way of saying, “What does the movie theater company own?” and “What are all the assets that they have?”. And let’s kind of think through what are the asset categories that you would see on the balance sheet? And would you expect it to be a big number or a small number? You know, what would we expect to see for a cinema? So, the very first thing that you can see here with a cinema is actually the physical property, right? So when you go to the movies, it’s a building. That building has a particular value. And so that is what we would call, “PP&E”, Property Plant and Equipment . And so that’s likely to be one of the large dollar amounts that you can see on the balance sheet for a cinema because that costs quite a bit of money. In addition, you’re going to see all of the furniture, all of the screens, all of those red chairs. All of that will also be included on the company’s balance sheet because there are large fixed assets that the company owns. So, again, these typically are getting categorized broadly, under a long-term assets, under furniture equipment, property, plant, and equipment.

Now, no one goes to the movies without at least getting a little bit of popcorn or sometimes some promotional merchandise that sits there. So that you might see categorized as something that we call, “inventory”. So, some of the extra candies that we see there or whenever you walk in and see some of the different items that are being sold. That would be showing up as some of their inventory. And then finally, we kind of think here, “What are some other common categories you might see on the balance sheet?”. Well, one of the common categories you would see is something that we call, “Accounts Receivable”. And that’s usually whenever your customers owe money to you. And so you will see that on the balance sheet of quite a few industries. So let’s think about a movie theater. How often have you gone to the movie theater and just told them, “Okay, I’ll pay for my ticket 30 days from now”. No, right. You have to pay immediately, even if you’re paying by credit card, the cinema is taking its money right now. So the actual balance for accounts receivable is not likely to be as high because you’re paying for the ticket immediately as compared to other industries where your customers have longer payment terms associated with them.

Now of course there will be other assets sitting on a cinemas balance sheet but pretty much every company is going to have some element of a cash balance sheet. They may have some other types of items you may see on there but hopefully this gives you a little bit of a flavor of the asset section of the balance sheet for a cinema, so that you can kind of take those same ideas and apply them to your own business or other businesses that you’re interacting with, to try to make some of those concepts a little bit more concrete.

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