chapter 5 - PREVIEW OF CHAPTER 5 1 Balance Sheet Balance...

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1 PREVIEW OF CHAPTER 5
2 Balance Sheet , sometimes referred to as the statement of financial position : 1. Reports assets, liabilities, and equity at a specific date. 2. Provides information about resources, obligations to creditors, and equity in net resources. 3. Helps in predicting amounts, timing, and uncertainty of future cash flows. LO 1Explain the uses and limitations of a balance sheet. Balance Sheet
3 Computing rates of return. Evaluating the capital structure. Assess risk and future cash flows. Analyze the company’s: Liquidity, Solvency (ability to pay its debts as they mature) Financial flexibility (ability to cope with unexpected events) Usefulness of the Balance Sheet LO 1Explain the uses and limitations of a balance sheet. Balance Sheet
4 Most assets and liabilities are reported at historical cost . Use of judgments and estimates . Many items of financial value are omitted . Limitations of the Balance Sheet LO 1Explain the uses and limitations of a balance sheet. Balance Sheet
5 Classification in the Balance Sheet LO 2Identify the major classifications of the balance sheet. Balance Sheet
6 Illustration 5-1 LO 2Identify the major classifications of the balance sheet. Balance Sheet Classification in the Balance Sheet
7 Cash and other assets a company expects to convert into cash , sell , or consume either in one year or in the operating cycle, whichever is longer . Current Assets Illustration 5-2 LO 2Identify the major classifications of the balance sheet. Classification in the Balance Sheet
8 Generally any monies available “on demand.” Cash equivalents - short-term highly liquid investments that mature within three months or less . Restrictions or commitments must be disclosed. Cash LO 2 Balance Sheet – “Current Assets” Illustration 5-3 Balance Sheet—Restricted Cash
9 Portfolios Type Valuation Classification Held-to-Maturity Debt Amortized Cost Current or Noncurrent Trading Debt or Equity Fair Value Current Available- for-Sale Debt or Equity Fair Value Current or Noncurrent Short-Term Investments LO 2Identify the major classifications of the balance sheet. Balance Sheet – “Current Assets”
10 LO 2Identify the major classifications of the balance sheet. Balance Sheet – “Current Assets” Short-Term Investments Illustration 5-5 Balance Sheet Presentation of Investments in Securities
11 Major categories of receivables should be shown in the balance sheet or the related notes. A company should clearly identify Anticipated loss due to uncollectibles. Amount and nature of any nontrade receivables Advances to officers and employees, or to subsidiaries, etc. Receivables used as collateral. Receivables LO 2Identify the major classifications of the balance sheet. Balance Sheet – “Current Assets”
12 Receivables Illustration 5-6 Balance Sheet Presentation of Receivables LO 2 Balance Sheet – “Current Assets”
13 Inventories Disclose: Basis of valuation (e.g., lower-of-cost-or-market).

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