Betsey Jordan asked a local bank for a $50,000 loan to expand her small company. The bank asked Betsey to submit a financial statement of the business to supplement the loan application. Betsey prepared the following balance sheet.

Required:
The balance sheet has several flaws. However, there is at least one major deficiency. Identify it and explain its significance.

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BALANCE SHEET June 30, 2004 Assets Cash and CDs (investments) $ 9,000 Inventory 30,000 Equipment 46,000 Personal residence (monthly payments, $2,800) 300,000 Remaining assets 20,000 Total assets $405,000 Liabilities Short-term debt to suppliers $ 62,000 Long-term debt on equipment Total debt Stockholders' equity 38,000 100,000 305,000 Total liabilities and stockholders' equity $405,000