510chapter5fall2009bb

510chapter5fall2009bb - Chapter 5: Balance Sheet and...

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Unformatted text preview: Chapter 5: Balance Sheet and Statement of Cash Flows Whats Important Usefulness/limitations of balance sheet How elements are classified in the balance sheet Balance sheet format Techniques of disclosure Purpose/content/format of statement of cash flows The balance sheet provides information for evaluating: Capital structure Assessing risk and future cash flows Analyzing an enterprises: Liquidity Solvency Financial flexibility Balance Sheet: Usefulness Balance Sheet: Usefulness Most assets and liabilities are stated at historical cost . Judgments and estimates are used in determining many of the items. The balance sheet does not report items that can not be objectively determined. It does not report information regarding off- balance sheet financing . Balance Sheet: Limitations Balance Sheet: Limitations Current Assets Long-term investments Property, plant, and equipment Intangible assets Other assets Current liabilities Long-term debt Owners equity Capital Stock Additional paid-in capital Retained earnings Assets Liabilities and Equity Balance Sheet: Classification Balance Sheet: Classification 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 Balance Sheet Generally any monies available on demand. Cash equivalents are short-term highly liquid investments that will mature within three months or less. Any restrictions or commitments must be disclosed. Cash Balance Sheet Current Assets Portfolios Short-Term Investments 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 Balance Sheet Current Assets Claims held against customers and others for money, goods, or services. Accounts receivable oral promises Notes receivable written promises Major categories of receivables should be shown in the balance sheet or the related notes. Receivables Balance Sheet Current Assets Accounts Receivable Presentation Options Current Assets: Cash $ 346 Accounts receivable 500 Less allowance for doubtful accounts 25 475 Inventory 812 Total current assets $1,633 Current Assets: Cash $ 346 Accounts receivable, net of $25 allowance 475 Inventory 812 Total current assets $1,633 1 2 Balance Sheet Current Assets Inventories Balance Sheet Current Assets Company discloses: Basis of valuation (e.g., lower-of-cost-or-market). Method of pricing (e.g., FIFO or LIFO). Payment of cash, that is recorded as an asset because service or benefit will be received in the future....
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510chapter5fall2009bb - Chapter 5: Balance Sheet and...

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