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

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1PREVIEW OF CHAPTER 5
2Balance Sheet, sometimes referred to as thestatement offinancial position:1.Reports assets, liabilities, and equity at a specific date.2.Provides information about resources, obligations tocreditors, and equity in net resources.3.Helps in predicting amounts, timing, and uncertainty of futurecash flows.LO 1Explain the uses and limitations of a balance sheet.Balance Sheet
3Computing 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 SheetLO 1Explain the uses and limitations of a balance sheet.Balance Sheet
4Most assets and liabilities are reported athistoricalcost.Use ofjudgmentsandestimates.Many items offinancial valueareomitted.Limitations of the Balance SheetLO 1Explain the uses and limitations of a balance sheet.Balance Sheet
5Classification in the Balance SheetLO 2Identify the major classifications of the balance sheet.Balance Sheet
6Illustration 5-1LO 2Identify the major classifications of the balance sheet.Balance SheetClassification in the Balance Sheet
7Cash and other assets a company expects toconvert intocash,sell, orconsumeeither in one year or in theoperating cycle,whichever is longer.Current AssetsIllustration 5-2LO 2Identify the major classifications of the balance sheet.Classification in the Balance Sheet
8Generally any monies available “on demand.”Cash equivalents- short-term highly liquid investmentsthat maturewithin three months or less.Restrictions or commitments must be disclosed.CashLO 2Balance Sheet – “Current Assets”Illustration 5-3Balance Sheet—Restricted Cash
9PortfoliosTypeValuationClassificationHeld-to-MaturityDebtAmortizedCostCurrent orNoncurrentTradingDebt orEquityFair ValueCurrentAvailable-for-SaleDebt orEquityFair ValueCurrent orNoncurrentShort-Term InvestmentsLO 2Identify the major classifications of the balance sheet.Balance Sheet – “Current Assets”
10LO 2Identify the major classifications of the balance sheet.Balance Sheet – “Current Assets”Short-Term InvestmentsIllustration 5-5Balance Sheet Presentation ofInvestments in Securities
11Major categories of receivables should be shown in the balancesheet or the related notes.A company should clearly identifyAnticipated loss due to uncollectibles.Amount and nature of any nontrade receivablesAdvances to officers and employees, or to subsidiaries, etc.Receivables used as collateral.ReceivablesLO 2Identify the major classifications of the balance sheet.Balance Sheet – “Current Assets”
12ReceivablesIllustration 5-6Balance Sheet Presentationof ReceivablesLO 2Balance Sheet – “Current Assets”
13InventoriesDisclose:Basis of valuation (e.g., lower-of-cost-or-market).

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Term
Fall
Professor
callaghan
Tags
Balance Sheet, Generally Accepted Accounting Principles

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