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Unformatted text preview: 1 1 The Balance Sheet & Notes to the Financial Statements Intermediate Accounting I HKU/FBE/BUSI0019 Dr. Min WU 2 Learning Objectives 1. Describe the specific element of the balance sheet (assets, liabilities, and owners’ equity), and prepare a balance sheet with assets and liabilities properly classified into current and noncurrent categories. 2. Identify the different formats used to present balance sheet data. 3. Analyze a company’s performance and financial position through the computation of financial ratios. 4. Recognize the importance of the notes to the financial statements and outlined the types of disclosures made in the notes. 5. Understand the major limitations of the balance sheet. 3 The Balance Sheet ¡ Presents a listing of an organization’s assets and liabilities at a certain time point. ¡ The difference between assets and liabilities is called equity . ¡ Represented by the basic accounting equation: Assets = Liabilities + Owners’ Equity 4 Assets Probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events Assets Assets Probable Probable future future economic benefit economic benefit obtained obtained or or controlled controlled by a by a particular entity as particular entity as a result of past a result of past transactions or transactions or events events Elements of the Balance Sheet ¡ The inclusion of “probable” acknowledges that accounting is not an exact science ¡ The primary purpose of the balance sheet is to help forecast the future. ¡ If a company economically controls the future economic benefits associated with an item, that item qualifies as an asset- even if legally it is not owned. 2 5 Elements of the Balance Sheet ¡ “Obligation” includes legal, moral, social, and implied commitments. ¡ An obligation to provide services is also a liability. ¡ Assets and liabilities arise from past events. Liability Probable future sacrifice of economical benefit arising from a present obligation of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. Liability Probable future sacrifice Probable future sacrifice of economical benefit of economical benefit arising from a present arising from a present obligation obligation of a particular of a particular entity to transfer assets or entity to transfer assets or provide services provide services to other to other entities in the future as a entities in the future as a result of result of past transactions past transactions or events. or events. 6 Elements of the Balance Sheet ¡ OE = TA - TL Equity Residual interest in the assets of an entity that remains after deducting its liabilities. In a business enterprise, the equity is the ownership interest....
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This note was uploaded on 02/22/2010 for the course FBE BUSI1002 taught by Professor Maochunlin during the Winter '08 term at HKU.
- Winter '08