Chapter 2.pptx - FINANCIAL MANAGERIAL ACCOUNTING for...

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FINANCIAL & MANAGERIAL ACCOUNTING for Decision Makers 3e DYCKMAN HANLON MAGEE PFEIFFER HARTGRAVES MORSE Constructing Financial Statements CHAPTER 2 © Cambridge Business Publishers, 2018
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Learning Objective © Cambridge Business Publishers, 2018 2 Describe and construct the balance sheet and understand how it can be used for analysis. 1
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Reporting Financial Condition © Cambridge Business Publishers, 2018 3 On January 31, 2015, Target’s balance sheet reports total assets of $41,404 million, total liabilities of $27,407 million, and equity of $13,997 million. Assets = Liabilities + Stockholders’ Equity Equity Assets Liabilities $41,404 $13,997 $27,407 Balance Sheet Contains the accounting equation components Prepared at a point in time
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Assets © Cambridge Business Publishers, 2018 4 Assets are resources that are expected to provide a company with future economic benefits. Must be owned or controlled by the company Legal title or unrestricted right to use the asset Must possess expected future benefits that can be measured Benefits can be expected as cash receipts or a reduction of liabilities A monetary value must be assignable to assets Characteristics required for an asset to be placed (capitalized) on the balance sheet.
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Assets © Cambridge Business Publishers, 2018 5 Why do companies acquire assets? To yield a return for shareholders Assets generate revenue Directly through selling inventory, or Indirectly through manufacturing inventory that will be sold Income in excess of the cost of funds used to acquire assets creates shareholder value
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Assets on Target’s Balance Sheet © Cambridge Business Publishers, 2018 6 Target Corp.’s balance sheet shows $41,404 million of assets at January 31, 2015. Note that Target’s fiscal year end does not occur at December 31. Target Corporation Balance Sheet ($ million) January 31, 2015 Assets Cash and cash equivalents $ 2,210 Inventory 8,790 Assets of discontinued operations 1,333 Other current assets 1,754 Current Assets 14,087 Property plant and equipment, net 25,958 Noncurrent assets of discontinued operations 442 Other noncurrent assets 917 Total Assets $41,404
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Categories of Assets © Cambridge Business Publishers, 2018 7 Current Assets Assets expected to be converted into cash or used in operations within the next year, or within the next operating cycle. Listed in order of liquidity Noncurrent Assets Listed after current assets on the balance sheet Not expected to expire or be converted into cash within one year, or within the next operating cycle. Referred to as long-term assets
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Common Current Assets © Cambridge Business Publishers, 2018 8 Cash —currency, bank deposits, certificates of deposit and other cash equivalents Marketable securities —short-term investments that can be quickly sold to raise cash Accounts receivable —amounts due to the company from customers arising from the sale of products or services on credit Inventory —goods purchased or produced for sale to customers Prepaid expenses —costs paid in advance for rent, insurance, or other services
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