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Unformatted text preview: Chapter 2 A FURTHER LOOK AT FINANCIAL STATMENTS
11 Identify the Sections of a Classified Balance Sheet Helps users see if company has enough assets to pay debts Can determine the shortterm and longterm claims on total assets 2 Classified Balance Sheet Generally contains the following standard classifications: Current Assets LongTerm Investments Property, Plant, and Equipment Intangible Assets Current Liabilities LongTerm Liabilities Stockholders' Equity 3 Current Assets Assets that are expected to be converted to cash or used up within one year. Current assets are listed in order of liquidity. Examples: Cash Shortterm investments Receivables Inventories Supplies Prepaid expenses
4 LongTerm Investments Investments of stocks and bonds of other corporations which are normally held for many years. Investments in longterm assets such as land or buildings that are not currently being used in the company's operations
5 Property, Plant, and Equipment Assets with relatively long useful lives. Assets used in operating the business. Examples: land buildings machinery delivery equipment furniture and fixtures 6 Depreciation is... Practice of allocating an asset's full purchase price to a number of years instead of expensing full cost in year of purchase. 7 Accumulated Depreciation... Shows the total amount of depreciation that the company has expensed thus far in the asset's life. 8 Assets That A Company Depreciates...
Should be shown at cost less accumulated depreciation 9 Intangible Assets Noncurrent assets Have no physical substance Examples: patents copyrights trademarks or trade names franchise Intangible Assets have value because of the exclusive 10 rights or privileges they give the company. Current Liabilities
Obligations that are supposed to be paid within the coming year... accounts payable wages payable bank loans payable interest payable taxes payable current maturities of longterm bank loans payable 11 Debts expected to be paid after one year
Examples... bonds payable mortgages payable longterm notes payable lease liabilities and obligations under employee pension plans LongTerm Liabilities 12 Stockholders' Equity
Common stock - investment of cash in the business by the stockholders Retained earnings - earnings kept for use in the business 13 3
11 Statement of Retained Earnings
From Chapter 1: The Statement of Retained Earnings describes the changes in the retained earnings for the period . . . Retained earnings, January 1 Add: Net income Less: Dividends Retained earnings, Dec. 31 $ 0 6,800 600 $ 6,200 14 5
11 Review Statement of Cash Flows Provides information about sources and uses of cash, organized as: Operating Activities Investing Activities Financing Activities 15 6
11 Primary Accounting Setting Body in the U.S. Financial Accounting Standards Board 16 U.S. Government Agency That Oversees Financial Markets Securities and Exchange Commission (SEC) 17 GAAP Are the Rules The FASB makes the rules. The SEC enforces the rules.
IASB = International Accounting Standards Board Review
What organization issues United States accounting standards? a. Financial Accounting Standards Board b. Internal Accounting Standards Committee c. Internal Auditing Standards Committee d. Securities and Exchange Committee
11 Basic Terms
Relevance - information makes a difference in decisions Reliability - information must be free of error and bias Comparability - ability to compare information of different companies because they use the same accounting principles Consistency - use of same accounting principles and methods from year to year within the same company y y y y 20 Characteristics of Useful Information
21 Accounting Assumptions Accounting Principles Constraints In Accounting Illustration 23 Review
What is the primary criterion by which accounting information can be judged? a. Consistency b. Predictive Value c. Usefulness for decision making d. Comparability
If we record a building at market value and not at cost, what principle or assumption have we violated? a. Monetary Unit Assumption b. Economic Entity Principle c. Full Disclosure Principle d. Cost Principle
What accounting constraint refers to the tendency of accountants to resolve uncertainty in a way least likely to overstate assets and revenues? a. Comparability b. Materiality c. Conservatism d. Consistency
The balance in retained earnings is not affected by: a. Net income. b. Issuance of common stock. c. Dividends. d. Net Loss.
Which of the following is not a current asset? a. Cash. b. Accounts Receivable. c. Dividends. d. Inventory.
Which of the following lists items found on the balance sheet? a.Cash, Accounts Receivable, Revenues. b.Accounts Payable, cash, supplies c. Vehicles, Rent expense, Dividends. d.Supplies Expense, Inventory, Land.
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