lec5_05_BS_Blackboard

lec5_05_BS_Blackboard - Financial Position Review...

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Financial Position
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Review Limitations of NPV Cash flow NOI
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Learning objectives Review the content of the income statement Introduce the concept of financial position Examine each component of the accounting equation See how an understanding of the accounting equation facilitates the analysis of business transactions
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The Income Statement 0 10 20 30 40 50 60 70 80 90 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Firm A Firm B Firm C
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Heading Name of Company Name of statement Period of time for which performance is measured Example General Motors Corporation Statement of Consolidated Income For the Years Ended December 31
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Coke’s Income Statement
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Financial Position Statement Depicts a firm’s wealth position at a moment in time. Is closely related to the measurement of enterprise performance.
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Assets = Liabilities + Owners’ Equity 1. Framework for communicating wealth position. 2. Transactions analysis tool. 3. Closely related to the measurement of income.
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1. A = L + OE as a communication framework Assets = economic resources (rights/ possessions) owned/ possessed by the firm that are capable of generating a stream of future economic benefits Expenditure: provides future benefits asset provides current benefits expense provides no benefits loss
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Current assets = assets that will benefit the firm within a year. Examples: cash, A/R, M/S, inventories, prepaid expenses
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Prepaid expenses = contractual services paid for in advance Examples: prepaid rent, prepaid insurance, advance payments to suppliers, etc.
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Fixed assets = assets that provide firm benefits for more than a year. Examples : property, plant, equipment, investments, intangibles
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Intangible assets = assets without physical substance that benefit the firm in terms of special rights or privileges Examples: copyrights, patents, goodwill, trademarks, trade names, franchises, etc.
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General valuation rule for assets = assets are valued at their original transactions value
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Relationship Between Assets and Expenses asset expense Financial position Income statement statement Unexpired cost Expired cost
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Liabilities = unpaid debts of the firm
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lec5_05_BS_Blackboard - Financial Position Review...

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