Chapter 3 331

Chapter 3 331 - Lecture Notes for Chapter 3 (ACCT 331) The...

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Lecture Notes for Chapter 3 (ACCT 331) The Balance Sheet The purpose of the balance sheet is to report a company’s financial position on a particular date. 1. Limitations and usefulness 2. Classifications 1 Limitations: The balance sheet does not portray the market value of the entity as a going concern nor its liquidation value. Resources such as employee skills and reputation are not recorded in the balance sheet. Limitations: The balance sheet does not portray the market value of the entity as a going concern nor its liquidation value. Resources such as employee skills and reputation are not recorded in the balance sheet. Usefulness: The balance sheet describes many of the resources a company has available for generating future cash flows . It provides liquidity information useful in assessing a company’s ability to pay its current obligations. It provides long-term solvency information relating to the riskiness of a company with regard to the amount of liabilities in its capital structure. Resources (Assets) Claims against resources (Liabilities) Remaining claims accruing to owners (Owners’ Equity)
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Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. 1) Current assets include cash and all other assets expected to become cash or be consumed within one year or the operating cycle, whichever is longer. Operating cycle: a. Cash and cash equivalents: Cash is currency plus bank deposits, demand drafts, money orders etc. Cash equivalents include highly liquid assets such as commercial paper, money market funds and U.S. treasury bills. Usually have a maturity period of three months or less. b. Short-term investments: investments that have a maturity period of more than three months but less than a year. c. Accounts receivable d. Inventories e. Prepaid expenses 2) Noncurrent assets are those assets that are expected to provide benefits beyond the next year or operating cycle. a. (Long-term) investments and funds b. Property, plant, and equipment c. Intangible assets d. Other assets 2 Use cash to acquire raw materials Convert raw materials to finished product Deliver product to customer Collect cash from customer
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  Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. 1) Current liabilities, in general, are expected to be satisfied within one year or the operating cycle, whichever is longer. a. Accounts payable b. Notes payable c. Unearned revenues d. Accrued liabilities e. Current maturities of long-term debt 3 (In millions) 2004 2003 Assets: Current assets: Cash and cash equivalents 1,046 $ 538 $ Receivables, less allowances 3,027 2,627 Spare parts, supplies, and fuel 249 228 Deferred income taxes 489 416 Prepaid expenses and other 159 132 Total current assets 4,970 $ 3,941 $ Property and equipment, at cost: Aircraft and related equipment 7,001 $ 6,624 $ Package handling & ground support
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This note was uploaded on 04/12/2009 for the course ACCT 331 taught by Professor V during the Spring '09 term at George Mason.

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Chapter 3 331 - Lecture Notes for Chapter 3 (ACCT 331) The...

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