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Unformatted text preview: Chapter 2 A FURTHER LOOK AT FINANCIAL STATMENTS 1 1 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 Retained $ 0 6,800 600 600 $ 6,200 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 What accounting standards? accounting a. Financial Accounting Standards Board Financial b. Internal Accounting Standards Committee b. Internal c. Internal Auditing Standards Committee Internal d. Securities and Exchange Committee Securities 19 7 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 What accounting information can be judged? accounting a. Consistency Consistency b. Predictive Value Predictive c. Usefulness for decision making Usefulness d. Comparability Comparability 24 Review If we record a building at market value and If not at cost, what principle or assumption have we violated? have a. Monetary Unit Assumption Monetary b. Economic Entity Principle Economic c. Full Disclosure Principle Full d. Cost Principle Cost 25 Review What accounting constraint refers to the tendency What of accountants to resolve uncertainty in a way least likely to overstate assets and revenues? least a. Comparability Comparability b. Materiality c. Conservatism Conservatism d. Consistency d. Consistency 26 Review The balance in retained earnings is not The not affected by: affected a. Net income. b. Issuance of common stock. c. Dividends. d. Net Loss. 27 Review Which of the following is not a current Which asset? asset? a. Cash. b. Accounts Receivable. c. Dividends. d. Inventory. 28 Review Which of the following lists items found on Which the balance sheet? the a.Cash, Accounts Receivable, Cash, Revenues. Revenues. b.Accounts Payable, cash, supplies c. Vehicles, Rent expense, Dividends. d.Supplies Expense, Inventory, Land. 29 ...
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This note was uploaded on 02/21/2010 for the course ACCT 200 taught by Professor Cohen during the Fall '07 term at Arizona.

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