acct 3311 problems ch 5

acct 3311 problems ch 5 - ACCT 3311 FALL 2007 PAGE 5-1 I....

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Sheet1 Page 1 ACCT 3311 FALL 2007 PAGE 5-1 I. Balance sheet, sometimes referred to as the statement of financial position, reports the assets, liabilities, and stockholders equity of a business enterprise. II. Usefulness of balance sheet. a. Useful in computing financial ratios and rates of returns and in evaluating the capital structure of the enterprise. i. Liquidity describes the amount of time that is expected to elapse until an asset is realized or otherwise converted to cash or until a liability has been paid. ii. Solvency refers to the ability of a company to pay its debts as they mature. iii. Financial flexibility refers to the ability of a company to alter its cash flows to respond to unexpected needs and opportunities. III. Limitations of the balance sheet. a. Most assets and liabilities are reported at historical cost. Historical cost is generally reliable but not relevant to decision making. Market value is the relevant amounts. b. Judgments and estimates are used in determining the amounts of many items in the balance sheet. c. The balance sheet omits many items that are of value to an business. a. See page 183 for an example of the report format of the balance sheet. The account format lists assets on the left and liabilities and equity on the right. b. Assets are usually classified as either current or noncurrent. i. Current assets are cash and other assets expected to be converted into cash, sold, or consumed either in one year or in the operating cycle, whichever is longer. 1. Current assets are listed in order of liquidity. Typical order: cash, investments, receivables, inventory, and prepaid expenses. We will cover in detail cash and receivables in chapter 7, inventory in chapters 8 and 9, and investments in chapter 17. ii. Noncurrent assets are usually classified in one of three groups: investments and equipment and equipment in chapters 10 and 11 , and intangible assets in chapter 12. c. Liabilities are classified as either current or noncurrent. i. Current liabilities are obligations expected to be liquidated either through the use of current assets or the creation of other current liabilities. Current liabilities are not listed in any particular order. Additional coverage of current liabilities is found in chapter 13. ii. Noncurrent liabilities include bonds payable, long term lease obligations, long term notes, pension obligations and estimated future warranty costs. Additional coverage of noncurrent liabilities is found in chapter 14. V. Supplemental balance sheet information is presented in the notes. a. Contingencies. Material events that have an uncertain outcome. We will cover contingencies in detail in chapter 13. b. Accounting policies. Explanation of valuation methods used or basic assumptions made concerning inventory valuation, depreciation methods, etc. GAAP frequently allows alternative policies or procedures. c. Contractual situations.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 20

acct 3311 problems ch 5 - ACCT 3311 FALL 2007 PAGE 5-1 I....

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online