Reading Notes Chapter 4

Reading Notes Chapter 4 - Reading Notes Chapter 4 The...

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September 11, 2007 Reading Notes Chapter 4 1. The balance sheet: the statement designed to provide information concerning an entity’s assets, liabilities, and equity and their relationship to one another at a moment in time 1. Not to state current value of business enterprise 2. Assets: probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events 1. Owned by the business and have value 2. Economic right or resource that will be of benefit to the firm 3. Examples: 1. Cash 2. Receivables from customers 3. Merchandise 4. Land 5. Buildings 6. Equipment 4. Things needed to continue operations 5. Always, the total assets of a business are equal to the total to the source of the assets 1. Owners and creditors sources of assets 1. Creditors: lend resources to the firm 1. Debt= liability 2. Probable future sacrifices of economic benefits arising from present obligations of a particular entity to tranasfer assets or provide services to other entities in the future as a result of past transactions or events 2. Investors: increases in net assets of an enterprise from transfers to it from other =entities in exchange for ownership interests 1. Ownership interests = equity 2. Assets most common investments made by owners 3. Investments of owners in the firm and any profits retained in the business are its equity 6. Equity: the residual interest that remains in an entity’s assets after deducting its liabilities 1. Equity = assets – liabilities 2. Ownership or stockholders’ interests 3. Sources of firm’s assets are its liabilities and owners’ equity
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2. Balance Sheet Classifications 1. Assets: probable future economic benefits controlled by a business as a result of past transactions or events 1. Resources with value 2. Initially recorded at the original cost 3. Characteristics: useful life, physical attributes, frequency of use 4. Ordering in terms of liquidity 1. The order in which the assets are normally converted to cash or used up 5. current assets 1. include cash or other items to be converted to cash, sold, or used up in the upcoming period 2. cash: all cash immediately available 3. marketable securities: temporary investments in stocks, bonds, and other securities 4. receivables: amount owed to the business by its customers 1. trade accounts receivable 2. other accounts receivable 3. notes receivable 6. inventories: the cost of goods or materials held for sale to customers in the ordinary course of business 7. prepaid expenses: expenses in current period that will be beneficial in the future 8. property, plant, and equipment: assets for use in the business rather than for resale to customers and the business will benefit from for years 9. other assets: 1. tangible- physical substance held for investment purposes 2. intangible- leases, patents, copyrights, trademarks 2. liabilities: debts representing claims of creditors against the assets of a business
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Reading Notes Chapter 4 - Reading Notes Chapter 4 The...

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