Module02 - Module 2 Financial Statements and Transaction...

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Module 2: Financial Statements and Transaction Analysis Four Main Financial Statements ± Balance Sheet ± Income Statement ± Statement of Stockholders’ Equity ± Statement of Cash Flows Balance Sheet ± Mirrors the Accounting Equation Assets = Liabilities + Equity Uses of funds = Sources of funds
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Assets To be reported on a balance sheet, an asset must 1. Be owned or controlled by the company 2. Must possess expected future benefits ¾ Assets are listed in order of liquidity ± Current assets comprise assets that can be converted to cash within a year ± Long-term assets cannot be easily converted to cash within a year. Examples of Current Assets ± Cash ± Marketable securities ± Accounts receivable ± Inventory ± Prepaid expenses Examples of Long-term Assets ± Property, plant and equipment (PPE) ± Long-term investments ± Intangible and other assets
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Apple’s Assets s1 General Mills, Inc. Assets Assets are Reported at Historical Cost ± Historical Cost is ± Objective ± Verifiable ± “Relevance vs. Reliability” ± Fair Value is used where prices are readily determinable
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Slide 7 s1 apple uses subcontractors hence low PPE Needs liquidity to take advantage of opportunities stephen.asare, 11/27/2007
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Flow of Costs Knowledge Based Assets are not Reflected on the Balance Sheet ± NOTE : While resources expended for research and development reflect and economic asset, they generally are expensed as incurred. ± INSIGHT : ± Pharmaceutical firms do not have assets reflecting the full amount of money that they have spent developing drugs. ± These amounts, for the most part, have been expensed in the past and serve to reduce retained earnings. ± Internally developed trade marks are also economic assets, but may not show up on the balance sheet. ± [The purchase of externally developed trademarks are treated as assets.] Disney’s Assets Where’s Mickey? The market value of the Mickey Mouse trademark does not explicitly show up here.
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Liabilities ± Liabilities are listed in order of maturity ± Current Liabilities come due in less than a year. ± Noncurrent liabilities come due after a year. Examples of Current Liabilities ± Accounts payable ± Accrued liabilities ± Unearned revenues ± Short-term notes payable ± Current maturities of long-term debt Examples of Noncurrent Liabilities ± Long-term debt ± Other long-term liabilities ± pension liabilities ± long-term tax liabilities
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General Mills, Inc. Current Liabilities General Mills, Inc. Long-term Liabilities
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Module02 - Module 2 Financial Statements and Transaction...

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