The accounting equation. AT&T and Verizon - Essay Example

Running Head: WEEK 3 DATA Week 3 Data In APA Style By The accounting equation serves asthe basis of the company's financial statements recognizing the principle of double-entry bookkeeping in accounting. The accounting equation is as follows: assets less liabilities = shareholders' equity. It can also be expanded as: assets less liabilities = shareholders' equity (revenue less expenses). The balance sheet of a business organization becomes the clearest manifestation of how this accounting equation is applied as this financial statement shows how its resources are financed by its stakeholders.

In the case of AT&T, the company's balance sheet states that for year ended 2007, it has a pool of assets amounting to $275,644 million. This amount can be broken down according to the liquidity of assets with fixed assets comprising the larger portion recognizing the capital intensity of its operation. On the financing side, AT&T's asset can be seen to be financed by both debt and equity. In terms of debt, the company breaks down its liability creditors into current and total assets with a total of $120, 973 million.

Consistent with the accounting equation, subtracting the liabilities from total assets, we can derive the company's total stockholders' equity. Thus, $275, 644 million less $120, 973 gives us $154, 671 which is equivalent to the company's reported stockholders' equity (AT&T's Annual Report 2007). On the other hand, Verizon's balance sheet also shows adherence to the accounting equation based on the latest annual report that it released. During 2007, the business organization states that it has assets summing up to $186, 959 million which much lower than what AT&T reports.

Similar with the other company considered, Verizon also breaks down its resources according to its immediate convertibility into cash. The company provides a section for its current assets and fixed assets with fixed assets larger than the current ones. What is different from AT&T is Verizon's recognition of its intangible resources. Included in its pool of asset are intangible ones comprised of licenses, goodwill, and other intangible assets. Similar to AT&T, these resources are financed by creditors and stockholders.

The company reports a total liability of $139,378 million which is larger than the share of its stockholders. Subtracting this amount from the total assets ($186,959 million less $139,378 million) gives the company's stockholders' equity which totals $50,581 (Verizon's Annual Report 2007). In conclusion, both AT&T and Verizon follow the accounting equation which states that a company's resources are either financed by creditors or owners. Thus, what is left when the creditor's share is subtracted from the total pool of assets is the portion which is attributed to the owners.

References AT&T's Annual Report. (2007). Retrieved 15 March 2008, from http://www.att.com/Investor/ATT_Annual/downloads/07_ATTar_Complete10K.pdf Verizon's Annual Report. (2007). Retrieved 15 March 2008, from http://www22.verizon.com/